UBS maintains buy rating on this aviation stock; upgrades target price by 35%
As Indigo trades at less expensive valuation among peers and UBS sees market share gains in the international market, share price of the company has been upgraded by the brokerage.
Global brokerage UBS has continued with its ‘buy’ stance on Interglobe Aviation with a target upgrade from Rs 4,000 to Rs 5,400, implying an upside of nearly 28 per cent.
The brokerage foresees double-digit growth in the country’s air travel by FY30E. Further, the demand for air travel in the country is projected to register 11-17 per cent CAGR between FY24-30E.
Long-term macro prospects along with various demand/supply tailwinds indicate continued strength in India's air travel demand, it noted.
UBS expects Indigo’s (run by parent entity Interglobe Aviation) share to increase further in the international market. We expect Indigo's market share gains in international travel to continue, further aided by A321 XLRs/A350s in the medium/long term, it highlighted.
The brokerage expects the company to generate a 13 per cent EBITDA CAGR over FY24-27E and upside risks on capacity growth as well as margins.
Despite the price upgrade and continuation of the ‘buy’ stance, shares of the company ended on a muted note at Rs 4,225 per share in today’s trade (July 1, 2024).
The brokerage added that most upgrades on the stock are made on the back of better-than-expected Q4 earnings.
Near-term outlook for Indigo
The brokerage for the just concluded June quarter of the FY25 expects the company’s yields or profitability to take a hit amid the sharp rise in Air India/Vistara's near-term capacity and expect a weaker Q2 on seasonality
UBS values Indigo at 11x one-year forward EV/EBITDA (vs 11x EV/ EBITDAR), which is the five- and 10-year historical mean. Our PT implies FY26E PE of 23x. Indigo's valuation is less expensive (despite dominant share and favourable industry structure) than other Indian tourism-oriented plays, added the brokerage.
What should investors do?
As a short-term profit impact on sudden significant rise in supply, seasonality or sharp fuel price increases cannot be ruled out; any associated dip remains an ideal buying opportunity, suggested UBS.
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