InterGlobe Aviation (IndiGo) remains one of the largest possible beneficiaries of the eventual recovery of air website traffic from the covid-induced depression. However, the influence of Covid 2. has been profound with typical money burn of Rs 334mn per day in Q1FY22. The total gross totally free money balance has shrunk from Rs 71bn in Q4FY21 to Rs 56bn in Q1FY22, debt excluding capital lease obligation improved from Rs 41bn in Mar’21 to Rs 58bn in Jun’21, and the readily available untapped liquidity (SLB and credit lines) declined from Rs 45bn in Mar’21 to Rs 39bn in Jun’21. Proposed QIP (Rs 30bn) will be an incremental readily available fund. The price structure remains competitive with induction of neos (44%/15% of fleet is A320/321 neos as of Q1FY22 and total neo share could rise to 90% by FY23-finish). The cargo freighter initiative (A321 ceos) diversifies the income stream and can contribute materially to total revenues in FY23E. We adjust for the reduced interest earnings (Rs 1.6bn in Q1FY22 vs Rs3.8bn in Q1FY21) and larger losses in complete year FY22E. Downgrade to ADD (from Buy) with a revised target value of Rs 1,800 (earlier Rs 2,000) based on 20x FY23E EPS of Rs 90 (Rs one hundred earlier).
Big influence of Covid 2. in Q1FY22: Revenue progress through the quarter was spread amongst Rs 15.4bn in April, Rs 6.7 bn in May and Rs 9.6bn in June. The July income trend has been equivalent to April. While visibility on international travel resumption remains unclear, management expects to return to pre-covid levels in the domestic segment by FY22-finish.
The binary among large profit and large loss tends to make website traffic recovery a very important investment thesis: IndiGo’s large fleet (277 aircraft split among 122 A320 neos, 85 A320 ceos, 41 A321 neos and 29 ATRs) creates a huge fixed price base, which will lead to large money inflows (earnings and forward sales) when in operations and large outflows when operations are suboptimal as seen in FY21. As such, website traffic recovery is a large driver of earnings. Current total domestic everyday passengers in July-TD is ~159k. Even with >250k per day, IndiGo made Rs 10bn loss in Q4FY21. Cash burn is for that reason most likely to continue in the close to term, particularly with a seasonally weak Q2 and larger crude rates.