IndiGo Q3 preview: Server hack, fleet expansion among key monitorables

IndiGo, India’s biggest aviation firm by market share, is set to report its December quarter (Q3FY21) results on Thursday, January 28. Amid improved traffic and cost saving measures, analysts are baking in a strong sequential growth in the airline’s earnings even as the figures may be half of the previous year.

In the December quarter of FY20, IndiGo had reported a profit of Rs 490.5 crore, on the back of Rs 9,931.7 crore-revenue, and Rs 1,669.9 crore-EBITDA. However, the outbreak of Covid-19 pandemic eroded the airline’s earnings, and its revenue stood at Rs 2,741 crore in Q2FY21. It incurred loss of Rs 1,194.8 crore in the September quarter, and EBITDA of Rs 206 crore. 

Investors expect the low cost airline to be a key beneficiary of revival in domestic travel amid the roll out of the coronavirus vaccine. The sentiment resonates in the stock price that has zoomed 38 per cent on the BSE as against a 25.4 per cent rise in the S&P BSE Sensex during the December quarter.
 

Here’s what brokerages expect from the airline’s Q3 numbers:

HSBC

Analysts at the brokerage would focus on the management’s commentary on key issues like fleet and capacity planning, liquidity, update on fund-raising via QIP, pricing strategy, network planning, cost management, cargo business, and underlying yield environment.  Besides, they would also track updates on the recovery in the corporate demand.

That apart, HSBC expects the management to issue a statement on the loss due to servers being hacked at the airline. Overall, the brokerage expects the airline to report a net loss of Rs 837.6 crore, and revenue worth Rs 5,146.9 crore. 

Centrum Broking

It estimates a net loss of Rs 630 crore led by improved traffic and cost saving measures. Their estimate builds-in forex mark-to-market (MTM) gain of Rs 200 crore on operating leases in Q3 led by 70ps appreciation in the rupee against the US dollar.

Operationally, the brokerage expects available seat-kilometer (ASKM) and revenue passenger-kilometer (RPKM) to decline by 41.4 per cent and 52.2 per cent YoY with passenger load factor (PLF) of 71.4 per cent (87.6 per cent in Q3FY20).

“We expect ticket revenue yield to improve 4 per cent YoY (up 5.1 per cent QoQ) to Rs 4 but revenue per available seat-kilometer (RASK) to decline 14.2 per cent YoY due to 1620 bps yearly decline in load factor. Ebitdar is likely to decline 49.3 per cent YoY to Rs 990 crore,” it noted in its report.

Edelweiss Securities

While the yield environment has remained strong, muted PLF will lead to decrease in RASK. Capacity growth, the brokerage says, should remain a concern and will increase going forward. “Decline in fuel CASK will act as a tailwind, offsetting impact of lower capacity. 

It expects the airline’s revenue to grow 227.6 per cent QoQ to Rs 8,979.3 crore, but stay around 10 per cent down YoY. Ebitdar, meanwhile, is seen at Rs 1,483.9 crore, up 263 per cent QoQ from Rs 408.5 crore; but down 24.3 per cent YoY from Rs 1,960.7 crore reported in Q3FY20. The net loss is seen narrowing sequentially to Rs 119.6 crore. 

Kotak Institutional Equities 

Analysts at the brokerage expect a 52 per cent yearly decline in revenues, to Rs 5,080 crore, on account of around 50 per cent YoY decline in passenger volumes. 

“We bake in YoY reduction in per unit fuel costs and 4 per cent QoQ increase on sequential hike in ATF prices. We also model reduction in employee, maintenance and other expenses. Base lease rentals and supplementary rentals remain a large cost item and drive PBT loss of Rs 768.4 crore,” it said in its earnings expectations report. The PBT in Q3FY20 stood at Rs 550.4 crore, and loss of Rs 1,194.9 crore in Q2FY21.

The brokerage expects Ebitda of Rs 730.2 crore leading to an Ebitda margin of 14.4 per cent, up 685 bps QoQ and down 245 bps YoY. Ebit loss may narrow QoQ, from Rs 920.6 crore, to Rs 437.9 crore. It was Rs 632.2 crore in Q3FY20.

Elara Capital

“We expect IndiGo to report a loss of Rs 250 crore (including forex gains of Rs 260 crore). We estimate its passenger yield to decrease 16 per cent YoY due to concerns over mutant strain of Covid-19, partially offset by improved passenger load factor of around 71.5 per cent during Q3FY21 compared with 65.2 per cent in Q2FY21. We estimate passenger volume to decline 48 per cent YoY for Q3FY21 and PLF at 71.5 per cent,” it said in its earnings preview report.