IndiGo reported a miss on our estimates, mainly led by lower-than-estimated yield (at Rs 4.4), with revenue passenger kilometre (RPK) being 15% below our estimate. Lower passenger load factor (PLF) at 76.5% due to Omicron adversely impacted the revenue per available seat kilometre (RASK) (down 3% QoQ) in the fourth quarter of the previous fiscal.
The management said international flights operated in March were more than 100, and are 90% of their pre-Covid levels in April-May. That said, according to our airfare tracker, the 30-day forward prices dipped sharply (-6% MoM) in May and the 15-day forward prices also dipped 5% MoM, due to the pent-up demand with more capacity coming in.
The Q4 yield was lower despite higher per unit fuel prices (+59% YoY), and depreciation in the rupee (led to higher forex loss of Rs 610 crore). Moreover, the management is expecting the yield to contract from the current level, given the entry of new and established players (Akasa/Jet Airways) that might result in higher competition. Factoring in the same, we reduce our yields to 3.9% for FY24E from 3.95%, keeping FY23E unchanged, and lower our EV/EBITDAR multiple to 7x (from 8x). Considering the above factors, we value the stock at 7x FY24E EV/EBITDAR to arrive at our target price of Rs 1,779, implying an 8% potential upside. Retain ‘Neutral’.Valuation and view: Free cash for the company increased to Rs 7,760 crore in 4QFY22 from Rs 7,090 crore in the year-ago period. The company is comfortable with its overall cash position.
IndiGo inducted three fuel-efficient 320 NEO and four 321 NEO aircraft and returned 15 older CEO ones. IndiGo capitalised lease assets of Rs 31,660 crore and had a total debt of Rs 36,870 crore as of 4QFY22.
The international market would grow faster than the domestic market for the airline and would reach 40% of the total share in the next five years.We believe that despite near-term challenges, IndiGo will be out of the woods stronger than before, with various preemptive measures already undertaken. However, the resurgence of airlines (Air India, SpiceJet) and upcoming Akasa, along with the established Jet Airways, would reduce Indigo’s market share going forward.