Steady, dependable: Why analysts think IndiGo is Rahul Dravid of aviation

IndiGo stock strategy: Given the run, analysts say IndiGo stock prices in most positives at the current levels

The stock of InterGlobe Aviation, the parent company that owns IndiGo, has given stellar returns over the past few months.
 

Over the past one year, the stock has soared 83 per cent on the BSE, while in the last six months, it has jumped 53 per cent. It hit a record high of Rs 4,188.15 on May 3, 2024.
 

By comparison, the benchmark S&P BSE Sensex has gained 20.4 per cent in a year, ACE Equity data shows.
 

Given the run, analysts say the stock prices in most positives at the current levels and rule out any exceptional returns from here on.
 

For Ambareesh Baliga, an independent market analyst, IndiGo stock is like Rahul Dravid - a dependable and consistent player.
 

"I expect IndiGo stock to be a steady performer from here on. While there are no reasons for IndiGo stock to come down, there are no reasons for this stock to move up sharply as well. There's nothing left to be discovered," Baliga said. 

 

For the long haul

Analysts suggest long-term investors buy the stock at current levels and hold for stable returns as the airline's latest decision to add wide body aircraft to its fleet will augment its competitive intensity in the industry.
 

That apart, IndiGo's decision to place order with Airbus will help it strengthen its global network and enhance its share in the international segment.
 

"IndiGo's competitors Air India and Akasa's order books have higher exposure to Boeing (737 Max) which faces several safety issues, and implies risk to their near-term capacity adds," said Sabri Hazarika, senior research analyst at Emkay Global Financial Services.
 

IndiGo has placed an order for 30 Airbus A350–900 wide-body aircraft, marking its foray into the wide-body aircraft segment. The deal is valued at around $9 billion, reports suggest. The deliveries are expected to commence by 2027, likely equipped with Rolls-Royce's Trent XWB engines.
 

IndiGo holds the purchase rights for additional 70 Airbus A350 family aircraft, underscoring the carrier's ambitions to expand its global footprint. 
 

"IndiGo is already in the process of adding 50 A321 XLRs (extra-long range) with deliveries likely to commence by 2025. A321 XLRs shall largely enhance IndiGo’s position in mid-long haul markets. Together, the addition of wide body long-haul aircraft shall enable IndiGo to strengthen its global network and increase connectivity from various domestic regions to international destinations," noted analysts at Nuvama Institutional Equities led by Jal Irani.
 

InterGlobe Aviation targets to increase its international market share to around 30 per cent by financial year 2024-25 (FY25), up from 27 per cent at present.
 

It has 88 domestic destinations, with the top few connected to over 50 destinations.
 

Kotak Institutional Equities has raised its target price on IndiGo stock to Rs 4,700 - up 19 per cent from the current levels, factoring in a 6 per cent combined impact of the available seat kilometer (ASK) addition, growing share of high-margin international ASK, and the related diversification away from the highly competitive domestic market.
 

Emkay Global, too, has bumped up FY25/26 earnings per share (EPS) estimates by 20 per cent on higher yields, with a target price of Rs 4,700.
 

Steady financials

That said, analysts believe contained fuel prices, with Brent Crude back below $85 per barrel-mark, coupled with a spike in air travel amid holiday season will support IndiGo stock in the immediate future.
 

“SpiceJet is still in a limbo, while Air India, and Vistara are facing pilot crisis. Amid all this, IndiGo is becoming a preferred airline for travellers,” said Ambareesh Baliga. 
 

Kotak Institutional Equities expects IndiGo to post net profit of Rs 964.4 crore in the January to March quarter (Q4FY24), up 5 per cent year-on-year but down 68 per cent quarter-on-quarter.
 

Ebitda margin, however, is seen contracting 26bps Y-o-Y/730bps Q-o-Q to 19.2 per cent in Q4.  
 

"Outlook on P&W engine-fitted aircraft (being grounded in FY25), and the management commentary on impending competition would be keenly monitored. Meanwhile, international expansion is the focus area for the management with addition of new networks and code share agreements which will be on radar during the post result conference," said Motilal Oswal Financial Services.