IndiGo shares jump after airline reports surprise Q2 profit; should you buy, sell or hold the stock?

InterGlobe Aviation shares were in high demand on Monday after the company, which owns and operates the IndiGo airline, staged a strong quarterly financial performance amid steady demand for air travel. IndiGo shares gained by as much as Rs 71, or 2.8 per cent, to Rs 2,579.4 apiece in morning deals on BSE.  

After market hours on Friday, InterGlobe Aviation reported a surprise net profit of Rs 189 crore for the July-September period, though it was down 93.8 per cent on a quarter-on-quarter basis. That marked the company's fourth profitable quarter in a row. 

According to Zee Business research, the company was estimated to report a net loss of Rs 2,060 crore for the quarter. The July-September quarter is usually weak for airlines operating in the country.

IndiGo's revenue declined 10.4 per cent sequentially to Rs 14,944 crore, better than analysts' estimates.

Zee Business analysts had pegged the airline operator's revenue for the September quarter at Rs 14,438 crore. 

InterGlobe's margin slumped by 1,480 basis points to 16.4 per cent for the second quarter of the current financial year, but was still better than the analysts' expectation of 15.8 per cent. 

What analysts make of IndiGo after the airline's earnings announcement 

Analysts remained largely positive on the airline after the release of its quarterly numbers. 

JPMorgan maintained its 'overweight' rating on InterGlobe Aviation and raised its price target for the stock by Rs 30 to Rs 2,910.

Citi retained its 'buy' call but brought down its target to Rs 2,900 from Rs 3,400. 

Prabhudas Lilladher kept its 'buy' call on InterGlobe Aviation shares with a target of Rs 2,816 apiece. 

According to the brokerage, InterGlobe Aviation's operating performance was better than its expectations expected with forex-adjusted earnings before interest, taxes, depreciation, amortisation, and restructuring or rent costs (EBITDAR) margin of 20.2 per cent, led by a reversal in the provision of airport fees and receipt of compensation benefits from OEMs relating to aircraft on ground (AoG). 

Prabhudas Lilladher had estimated IndiGo's EBITDAR for the quarter at 15.8 per cent.

"We believe IndiGo is well placed to strongly benefit from 1) capacity deployment (north of mid-teens capacity guidance remains intact for FY24E, despite escalation in engine issues at P&W), 2) network expansion in domestic as well as international markets and 3) superior balance sheet (Rs 180bn of free cash). In addition, recent decision to levy fuel surcharge in the band of Rs300-1,000 depending upon distance is expected to provide cushion to gross spreads in an environment of rising ATF prices," said the brokerage, which expects the airline to register a revenue CAGR of 16 per cent over next two years with EBITDAR margins of 22.8 per cent and 25.1 per cent in FY24 and FY25, respectively.

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