IndiGo Q1 net profit plunges 96% to Rs 278 million, more trouble ahead

After muted June-quarter performance due to cost and pricing pressure, the outlook for seasonally weak second quarter is no different

If the March quarter numbers were disappointing, with a 73 per cent year-on-year fall in net profit, the June quarter performance at InterGlobe Aviation (owner of airline IndiGo) was worse. With a spurt in fuel cost and pricing pressure, the company reported a 96 per cent decline in net profit over the year ago quarter to Rs 278 million — analysts had expected Rs 5 billion.

Compounding matters for it was foreign exchange (forex) losses, given the depreciating rupee and unusually high maintenance cost, due to an older fleet of aircraft.

Fuel has been biggest drag, with a litre costing 30 per cent more than the same quarter a year before. As it is 40 per cent of overall cost, a rise in this weighs down the performance. The company also indicated a Rs 2.46 billion forex loss, as against a Rs 66 million gain in the year-ago quarter.

Other expenses (including maintenance costs) were up 28 per cent, though this is expected to be more of a one-off. Analysts say if the impact of forex and maintenance were to be excluded, the company would have reported a net profit of Rs 2.5-3 billion.

It is not only cost which is holding back the industry and IndiGo. While revenues were up 13 per cent over a year as more and more passengers flew the airline, with a load factor of nearly 90 per cent, this came at the cost of softer pricing. Thus, revenue at Rs 6.51 billion was lower than analysts’ estimate of Rs 6.7 billion. Competitive intensity, especially in the 0-15 day booking period which accounts for 40 per cent of overall booking, continues to impact yields. More people await a better offer before booking a ticket, says an analyst at a domestic brokerage. So, yields were down 5.4 per cent, much more than analysts had estimated.

Higher costs not matched by revenue growth meant margins prior to rental costs fell 1,670 basis points YoY to 17.4 per cent.

The industry could face more trying conditions. The June quarter is considered a good one for the sector but the September one is considered the worst, given the monsoon. Airlines will have to give attractive fares to keep their planes full.

Which means the current quarter will be no different. Expect the stock, which has lost 40 per cent since the start of May, to come under further pressure in trade on Tuesday as the outlook for the sector, on the back of high costs and competitive pricing, looks weak.