IndiGo Q3 preview: Airline to turn profitable amid healthy traffic, low ATF

The domestic air traffic capacity reached close to full capacity in Q3, while a pick up in international commercial flights provided the much needed relief to the aviation industry

IndiGo Q3 preview: Healthy air traffic, aided by international travel, corporate demand revival, and festive season, along with correction in oil prices, and price hikes may have propelled domestic airlines -- IndiGo and SpiceJet -- into profit zone in the December quarter of FY23 (Q3FY23), according to analysts' estimates, who believe that the domestic air traffic capacity reached close to full capacity in Q3, while a pick up in international commercial flights provided the much needed relief to the industry.

"Players hiked ticket fare gradually across segments to mitigate the higher fuel prices, therefore building in expectations of quarter-on-quarter (QoQ) increase in yield. Though aviation turbine fuel (ATF) prices corrected by roughly 8 per cent QoQ, it still remains elevated impacting the overall margins of the aviation industry," said a note by Reliance Securities.

Among the two listed players, InterGlobe Aviation, the parent company of IndiGo, is slated to report its Q3FY23 results on Friday, February 3.

Here's what brokerages expect:

Reliance Securities

IndiGo is expected to report a net profit of Rs 919.8 crore, including mark-to-market (MTM)forex loss of Rs 470 crore, led by strong demand, healthy load factor, higher international traffic, and better yield.

IndiGo had reported net profit of Rs 128.5 crore in Q3FY22, and net loss of Rs 1,585.5 crore in Q2FY23.

It expects available seat kilometer (ASK) growth of 31 per cent YoY (8 per cent QoQ), while yield is expected to grow by 17 per cent YoY (2 per cent QoQ). ASK suggests potential revenue from each available seat.

Earnings before interest, tax, depreciation, amortisation, and rent (Ebitdar) margin is expected to be at 19.4 per cent due to higher demand and stable ATF prices. Margin was 20.5 per cent last year, and 0.6 per cent QoQ.

In absolute terms, Ebitdar is pegged at Rs 2,806.2 crore, up 47 per cent on year from Rs 1,905.3 crore. On a quarterly basis, it would come against Ebitdar of Rs 370 crore.

Prabhudas Lilladher

The brokerage estimates IndiGo's PAT at Rs 691 crore, on the back of improved yields (Rs 5.35 vs Rs 5.15 in H1FY23) and load factors (84 per cent vs 79.3 per cent H1), slight correction in crude prices, and increased pax traffic.

RPKMs, or revenue passenger kilometers, it said, could improve nearly 9 per cent QoQ led by higher load factors in a seasonally strong quarter, while RASK (revenue per available seat kilometers) could improve to Rs 4.9 vs Rs 4.5 sequentially. 

"We expect spreads (RASK-Fuel) to grow at highest-ever levels of Rs 2.9, a growth of 30 per cent QoQ, aided by better yields and decrease in fuel costs. However, with rupee depreciation of 1 per cent against the US dollar, we expect forex losses to impact Ebitdar margins," the brokerage said.

It builds in Rs 830 crore of forex MTM loss. Ebitdar is pegged at Rs 2,439.4 crore.

ICICI Securities

It anticipates RASK of Rs 5.1, up 13 per cent QoQ, driven by passenger revenue growth of 16 per cent QoQ (on the back of 14 per cent increase in PAX and 2 per cent increase in fare growth). RASK is an operational profitability metric to gauge revenue per increment capacity.

We have factored-in CASK (ex-fuel) of Rs 2.55 (Rs 2.52 in Q2FY23). Forex loss are expected to be in the vicinity of Rs 550 crore resulting in reported PAT of Rs 956.8 crore. Adjusting for the forex loss, we expect PAT at Rs 1,500 crore.

Total operating income is pegged at Rs 14,537.5 crore, up 56.4 per cent YoY from Rs 9,294.8 crore. Sequentially, it would be a rise of 16.3 per cent from Rs 12,497.6 crore.
 

Ebitdar is seen at Rs 2,586.8, and Ebitdar margin at 17.8 per cent.