Analysts wary of IndiGo, SpiceJet despite Covid vaccine news, prefer IRCTC

Stock of IRCTC, the company that has been carrying passengers even during lockdown, advanced 6.9 per cent on the BSE to hit an intra-day high of Rs 1,404 on the BSE

Travel-related stocks, InterGlobe Aviation, SpiceJet, and IRCTC, jumped at the bourses on Tuesday after Pfizer Inc said its experimental Covid-19 vaccine was more than 90 per cent effective based on initial trial results, giving hopes that global economies may soon return to normalcy.

Pfizer and its German partner BioNTech SE said they had so far found no serious safety concerns and expected to seek US authorization this month for emergency use of the vaccine, raising the possibility of a regulatory decision as soon as December. If granted, the companies estimate they can roll out up to 50 million doses this year, enough to protect 25 million people, and then produce up to 1.3 billion doses in 2021. READ MORE

Individually, InterGlobe Aviation-run IndiGo leaped 9.8 per cent to hit an intra-day high of Rs 1,638 on the BSE. The stock eventually settled 9 per cent higher at Rs 1,630 per share. With today's gains, the stock is up 61 per cent on the BSE, as against 50.6 per cent rise in the S&P BSE Sensex since March 25 (on closing basis), ACE Equity data show. Since June 8, when India began unlocking the economy, the stock has surged 36.6 per cent till Monday, compared with 24.2 per cent rally in the S&P BSE Sensex.

SpiceJet, on the other hand, rallied 6.6 per cent today, hitting a high of Rs 53.5 per share. Since Unlock 1.0, the low-cost carrier airline's stock has underperformed at the bourses and has gained 3.5 per cent, while gains since March 25 are around 57 per cent. It closed 2.4 per cent higher at Rs 51.2 per share.

Stock of IRCTC, the company that has been carrying passengers even during lockdown, advanced 8 per cent on the BSE to hit an intra-day high of Rs 1,418 on the BSE. The stock closed around 5 per cent higher at Rs 1,375 per share.

"It definitely makes a lot of sense to look at the travel sector. The anticipation of a Covid-19 vaccine seeing the light of day close by sectors which are impacted the most due to the pandemic will witness early stage buying. Besides, with the market richly valued, these stocks seem favourably priced-in terms of potential reward with low downside risk," says Vinit Bolinjkar, head of research at Ventura Securities. He is positive on both, IndiGo and IRCTC. 

While experts welcomed the first successful interim data from a large-scale clinical test as a watershed moment, they cautioned that they still needed to see the full trial data, which have yet to be peer-reviewed or published in a medical journal. 

Accoring to a study by Inmarsat, as many as 83 per cent of passengers globally are reluctant to fall back into their old travel habits and 31 per cent will travel less often by air. The survey of some 10,000 frequent fliers conducted by the London-based firm and released on Tuesday showed that fear of infection means only just over one-quarter of people in the Asia-Pacific region say they feel confident enough to fly again within six months. READ MORE

Add to it, analysts tracking the travel space are slightly cautious on the future of aviation stocks as reopening of the economy would also nudge oil prices to move higher. This, they say, could possibly dent their earnings as fuel costs make up around 30-40 per cent of total costs for the airlines.

Ajit Mishra, VP Research at Religare Securities says that even though the recent developments would help airline stocks return to normalcy faster, though much of it looks already priced in especially in InterGlobe stock price. Besides, the sector has a high dependency on crude which has also seen a considerable rise recently, he adds.

Oil prices soared by 10 per cent, posting their biggest single-day jump in over five months, and WTI Crude topped $40 a barrel on Monday. On Tuesday, however, US WTI crude futures dropped 2 per cent to $39.48 a barrel as near-term demand concerns weigh on investor sentiment.

In this backdrop, Mishra suggests investors to look at IRCTC as the recent developments would benefit the company given its monopoly.

"IRCTC stock has corrected around 30 per cent due to disruption brought in the business by Covid-19... If an effective vaccine comes to the country, the government will allow more trains to start their operation and people will also plan their trip. With more trains running on the track, IRCTC will report better revenue and profitability. Given this, we are bullish on IRCTC due to its monopolistic nature business model, increasing market share in packaged drinking water and even after Covid-19 disruption yet long term fundamentals are intact for the company," says Keshav Lahoti, associate equity analyst at Angel Broking.