IndiGo dips 8% on biggest quarterly loss in Q2; brokerages cut target price

With marginal improvement seen in Q3 dampened by the economic slowdown and weak demand, brokerages have slashed target prices

InterGlobe Aviation-run IndiGo airlines nosedived 8 per cent to Rs 1527.85 in intra-day deals on the BSE on Friday, after the airline reported its biggest quarterly loss of Rs 1,062 crore in the September quarter of financial year 2019-20 (Q2FY20). Moreover, it cut its capacity expansion targets for 2019-20 by 5 percentage points. 

The country's biggest airline by market share reported a surprise loss on the back of higher maintenance costs and mark-to-market losses. The company had a loss of Rs 651.5 crore in the same period a year ago.

"In a historically weak quarter, we registered a negative profit before tax margin of 12. 7 per cent compared to 16 per cent margin loss registered in the same quarter last year. While our revenue performance was much better during the quarter, the losses were accentuated by forex losses on operating lease liabilities created under IND AS 116, and re-assessment of accrual estimates for future maintenance cost," Ronojoy Dutta, chief executive officer (CEO), IndiGo said in a statement.

Maintenance costs spiked as IndiGo was forced to reassess the expense of leasing and maintaining older Airbus A320ceo planes to fill a gap caused by the grounding of newer A320neo aircraft due to engine issues, Chief Financial Officer Aditya Pande said on a call with analysts on Thursday, Reuters reported.

The airline, however, reported a higher total income at Rs 8,539.8 crore, up 31 per cent YoY. Its EBITDAR also rose 16 per cent to Rs 256.4 crore. 

" Our passenger ticket revenues were Rs 7,100.8 crore, an increase of 34.4 per cent and ancillary revenues were Rs 930.2 crore, an increase of 29.8 per cent compared to the same period last year," the statement said. 

The management said, it cut the FY20 capacity expansion target to 25 per cent from 30 per cent, due to a "3-4 month delay in aircraft deliveries by Airbus". It maintained capacity growth of 25 per cent for 2020-21.

BROKERAGES SLASH TARGET PRICE

Despite the weak quarterly results, analysts continue to remain positive on the stocks. Analysts at ICICI Securities, for instance, remains optimistic on the airline due to strong volume growth with an improved international mix, improving cost advantage over peers, and low systemic capacity addition outlook in India.

"Continuous cash accretion is leading to significant other income (~Rs4.3 bn in Q2FY20). Increased international mix (23 per cent currently from 14 per cent in FY19) and higher share of neo is expected to lower fuel cost structurally. The lower corporate tax rate of 25 per cent is also a positive," analysts said in a results review note. While they maintain a 'buy' on the stock, the target price has been cut to Rs 1,936 from Rs 2,000.

Analysts at Credit Suisse also maintain 'outperform' on the stock with a target price of Rs 1,900., down from Rs 2,000 earlier. The brokerage has revised the FY20/21E estimates downward by 49/25 per cent on elevated costs and flattish management commentary for forthcoming quarters.  

"Indigo has re-assessed its accrual estimate for heavy maintenance and overhaul cost of engines, and has considered an additional accrual of Rs 3.2 billion as of 30th Sep’19. The company expects the maintenance cost to remain high for the later part of FY20 too as the A320ceo engines (with extended leases starting 2016) go for the second shop visit," analysts at Motilal Oswal Financial Services said in a results review note. 

With marginal improvement seen in Q3 dampened by economic slowdown and weak demand, the brokerage revised the FY20/21 yield estimate from Rs 3.8/4.1 to Rs 3.75/3.9, with ASK growth estimate of ~25 per cent/~10 per cent for FY20/21. 

"We remain cautious on the stock – it trades at 31.2x FY20E EPS of Rs 53.4 and 9.1x FY20E adj. EV/EBITDAR. We value INDIGO at 17x FY21E EPS to arrive at a TP of Rs 1,542," it said. They, however, maintain 'Neutral' stance on the stock.

At 10:25 am, the stock was trading 9 per cent lower at Rs 1,516.8, as against a 0.13 per cent decline in the benchmark S&P BSE Sensex. SpiceJet, too, was trading 5.15 per cent lower at Rs 108.65 apiece. It touched an intra-day low of Rs 107.30.