InterGlobe Aviation stock hits an air-pocket in Jan-Mar quarter of FY24

The civil aviation market has become more or less a duopoly with market leader Indigo (InterGlobe Aviation) reporting strong EBITDA growth of 45 per cent year-on-year (Y-o-Y) to Rs 3,980 crore in the January-March quarter (Q4) of FY24, with PAT rising more than 2x to Rs 1,890 crore. Both EBITDA and PAT were lower than consensus.

The passenger load factor (PLF) was 86.2 per cent with available seat kilometres (ASK) of 34.8 billion and yield at Rs 5.2 per seat-km. Revenue was Rs 17,800 crore (up 26 per cent Y-o-Y). The company has paid IGST of Rs 62.1 crore in Q4FY24 on re-import of repaired aircraft, and this amount is under dispute now.

Like other airlines, Indigo has suffered the grounding of a large fleet component with 70-80 aircraft out of service due to issues with Pratt & Whitney engines. The management hopes to add one in-service aircraft per week on average in FY25, with capacity and passenger growth guidance placed in the mid-teens for FY25. The ASK is expected to grow 10-12 per cent YoY in Q1FY25.

The airline has added more domestic routes, totalling 400 across 88 destinations and added more international routes, totalling 100 across 33 international destinations and increased both direct international routes, and code share partnerships to 8, contributing mid-single digits to revenue mix.

The 30-day domestic forward prices for Indigo are up by 1 per cent quarter-on-quarter (QoQ) at Rs 6,438 average and the 15-day prices are up by 4 per cent QoQ at Rs 7,123 in Q1FY25 till date. The management says Revenue per ASK in Q1FY25 is similar to Q4FY24. The management also announced a new product aimed at redefining domestic premium travel to be announced in August 2024 and made available by the end of CY24.

The fleet size has been increased to 367 in FY24 from 306 in FY23. The long-term guidance of doubling capacity stays intact, despite short-term issues. Maintenance costs and airport charges are both seeing inflationary trends. The Q4 miss was due to higher expenses and lease rentals.

In FY24, revenue was at Rs 68,900 crore (up 27 per cent Y-o-Y), while EBITDA was Rs 17,400 crore (up more than 250 per cent Y-o-Y) and PAT was at Rs 8,200 crore versus loss of Rs 320 crore in FY23. The PLF for FY24 improved to 85.9 per cent from 82.1 per cent in FY23, with an average yield at Rs 5.1 (flat YoY). The cash on balance sheet was Rs 20,800 crore by end-FY24 vs. Rs 12,200 crore by end-FY23. The capitalised operating lease liability was at Rs 43,500 crore with a total debt of Rs 51,300 crore as of March 2024.

In international operations, the company is working through strategic partnerships and loyalty programs. The company served 106.7 million customers in FY24, with a net increase of nine aircraft. The company has eight strategic partners with 27 per cent international share in ASKs in FY24. The management is also trying to build overseas brand awareness.

Management believes experiential travel and foreign destinations are new trends. Guidance is to add one aircraft every week on average in FY25. While capacity and passenger growth guidance of early teens is intact for FY25, there are headwinds. Expenses were higher due to aircraft on ground (AOG) related costs and grounded fleet numbers remain range-bound. It is in discussion with OEMs for a curated compensation package. The Revenue per ASK level remains stable QoQ in Q1FY25 while maintenance costs and airport fees are seeing inflationary pressures. Capacity constraints have led to a demand –supply gap and this has enabled sharp rise in fares. The stock suffered a 3.5 per cent sell off on results but analysts remain optimistic about future prospects. According to Bloomberg, 10 out of 15 analysts polled post Q4 are bullish on the stock; one has reduce rating and the remaining four are neutral. Their average one-year target price is Rs 4,638, compared to Friday’s closing of Rs 4,255.80.