Prabhudas Lilladher has given Hold recommendation for InterGlobe Aviation with a target price of Rs. 1800 in its research report issued on May 26, 2022

Prabhudas Lilladher’s research report on InterGlobe Aviation

IndiGo’s reported a disappointing EBITDAR of 1.3%, impacted by soaring fuel costs, higher forex losses and demand affected by Omicron wave. The company was able to maintain yields at Rs 4.4, alike QoQ. Load factors at 76.5% contracted 300bps QoQ impacted by lower RASK (-3% QoQ). Despite demand recovery in Apr-May22 profitability will remain impacted in the next quarter, due to higher ATF prices and rupee depreciation. However, over medium to long term IndiGo remains optimistic on long term demand opportunities and is focused on (1) higher capacity deployment (management highlighted 50%+ growth in FY23) as domestic demand improves and international travel comes back, (2) responsibly fortifying and widening of its domestic network (3) increasing cargo revenue and (4) softening of commodity costs.

Outlook

We believe IndiGo will emerge stronger and continue to remain better placed than its peers with ~55% market share driven by (1) demand recovery along with capacity deployment (2) superior balance sheet (Rs76bn free cash) (3) better than industry cost structure and (4) strong management. We reduce our EV/EBITDAR multiple to 8x (9x earlier) to factor in the inflationary cost environment. Maintain ‘HOLD’ with a TP of Rs 1,800.

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