IndiGo stock drops 11% as analysts cut profit outlook

Airline's Q1FY17 net profit dipped 7.3% to Rs 591 cr y-o-y; result below estimates both on revenue and profit

InterGlobe Aviation's (IndiGo) stock plunged 11 per cent today as brokerages and analysts cut the airline's profit outlook for FY 17 on the back of increased competition, yield pressure and continued issues with Airbus A320neo aircraft.

The airline's Q1FY17 net profit dipped 7.3 per cent to Rs 591 crore on a year-on-year basis and the result came below estimates both on revenue and profit. Yield pressure and lower occupancy in June hurt the airline and it reported slower passenger growth compared to two preceding quarters.

On Tuesday, InterGlobe Aviation's stock closed at Rs 865.20 which is 11 per cent lower than previous close.

In its note to investors, Edelweiss Securities said the airline's profit for three consecutive quarters has lagged the volume growth due to double-digit decline in yields and an increase in non fuel costs. "While fleet expansion is expected to be moderate we believe IndiGo could deliver 30 per cent growth in capacity deployed on rising utilisation of existing fleet. Moreover in maintaining its passenger load factor/volume growth the airline could witness sustained pressure on yields resulting in muted profit growth," Edelweiss Securities said revising its FY17 profit estimate by 20 per cent to Rs 2,060 crore.

Motilal Oswal cut its FY17-18 earning per share estimate by around 7 per cent primarily led by 2 per cent cut in yield assumptions. "We believe IndiGo's new stance to respond actively to competitor's pricing could result in sacrificing profitability in near term," brokerage Motilal Oswal said.

While announcing the result on Monday IndiGo also said it is facing operational issues with its new A320neo aircraft. The airline has taken delivery of five planes of type and has in all 430 planes on order.

In its result press statement the airline also said it is looking to slow down induction of A320neo planes to allow engine manufacturer Pratt & Whitney to complete the engine upgrade work. But later in a conference call with analysts the airline management said it is yet to take a decision and hopes to receive additional 19 A320neo planes this year as per its original schedule.

"We have posted yet another profitable quarter. However, profitability was lower than last year primarily because of competitive fare pressure," said the airline's president, Aditya Ghosh while announcing the result.

IndiGo's load factor for the quarter declined by 2.43 per cent to 83.6 per cent, from 86.03 per cent last year. The airline management said its load factor fell because it added new flights and did not match lower fares offered by competitors. Ghosh said the airline is rethinking its pricing strategy following decline in loads.