IndiGo Q4 numbers modest, but stock rises on hope of profit, traffic

Sustained growth in air travel and pricing discipline are key parameters for India's largest airline.

Though InterGlobe Aviation’s (IndiGo's) March quarter results (Q4FY22) were below expectations, the stock surged more than 10 per cent in trade on Thursday. 

The gains for India’s largest airline company were in hopes that improving metrics on volumes and pricing, and focus on profitability shall reflect on its financials in the coming quarters. 

Rising prices and load factors helped the company improve its yields, which have increased from 4.4 in the March quarter to about 5.4 in May. 

Passenger traffic is rising with the weekly average of daily passengers for the sector improving to 375,000 at the end of last week, as compared to 368,000 in the week before that and double the levels prevailing in January.  

While its load factors in the March quarter were hovering at 76.5 per cent, it is at 80 per cent currently. 

The company gained market share from 54.8 per cent in March to 58.9 per cent in April. 

A positive trend for the company is more corporate travelling, which hit 90 per cent of pre-Covid levels in the previous quarter and is expected to improve further in the current quarter. The company also expects international travel to do better than domestic and is expected to account for 40 per cent of the overall share in the next five years. 

Though the company posted losses of just under Rs 1,700 crore in Q4, impacted by the Omicron wave in the first half of the quarter, higher fuel costs, and rupee depreciation, it is expected to benefit from multiple initiatives it took earlier. Induction of fuel-efficient aircraft, cost control, and effort to maximise revenues may help the company in the near term. Kotak Securities expects the company to turn profitable in the June quarter on the back of superior network coverage and yield management. 

While it focuses on profitability and expects rational pricing, how this plays out shall depend on the competitive situation and pricing strategy of players, especially the new entrants. 

The other risk for the market leader is higher fuel costs. Ashutosh Somani and Heet Vora of JM Financial say: “We believe that increased competitive intensity from Air India after acquisition by the Tata group and entry of two new carriers, Akasa and Jet Airways, is likely to cause the yields to normalise. Rising fuel prices on account of the geopolitical situation are likely to have an impact on profitability.”

The company’s share price factors in the improving momentum in passenger demand, they add. 

Given the multiple challenges, investors should await improvement in the pricing and passenger traffic trajectory before considering the stock.