IndiGo shares plunge to seven month low on dismal earnings

Shares of InterGlobe Aviation Ltd plunged nearly 20 per cent on Thursday to a seven-month low and wiped out Rs 101.13 billion ($1.52 billion) in market capitalisation after the owner of India’s biggest carrier IndiGo reported dismal quarterly earnings.

InterGlobe reported a 73 per cent slump in its fourth-quarter profit after market hours on Wednesday, hurt by a 33.5 per cent surge in fuel costs, lower yields and foreign exchange losses.

The company is seeing yield pressures in the industry, InterGlobe said in an analyst call on Wednesday, adding that fares in the zero to 15-day booking window were “materially lower” than a year earlier.

“This is typically high-yielding traffic and consequently, our yields have been impacted more than expected and that is in spite of increasing fuel prices,” Chief Financial Officer Rohit Philip said.

There have been some signs of yield improvements, but it is too early to say whether this will sustain over the quarter, added Philip.

Passenger yields, which gauge the average fare paid per mile per customer, dropped more than 5 per cent, while revenue per available seat kilometre — a measure of operating earnings, fell over 3 per cent.

Citi downgraded the stock to “sell” from “buy”, citing the twin impacts of rising cost pressures and weak pricing power, while Morgan Stanley retained “equal-weight”.

Quarterly yields were even weaker than what “we feared and that will be the key driver for earnings incrementally,” Morgan Stanley said in a note, adding that yields would likely be flat in 2019 and rise 3 per cent in 2020.

Citi cut its full-year 2019-20 EBITDAR (earnings before interest, tax, depreciation, amortisation and rent costs) estimates by 13 per cent-17 per cent to reflect a cut of 1 per cent-2 per cent in yield estimates, higher fuel costs and weaker rupee.

Citi cut its target price to Rs 1,240 from Rs 1,600, while Morgan Stanley trimmed it to Rs 1,205 from Rs 1,213.

Thirteen of the 18 brokerages covering InterGlobe rate it “buy” or higher, four “hold” and one “sell”. Their median price target is Rs 1,472.50, according to Thomson Reuters data.

InterGlobe shares plunged as much as 19.8 per cent on Thursday, their sharpest since late January 2016, while rivals SpiceJet Ltd dropped up to 9 per cent and Jet Airways (India) Ltd fell more than 11 per cent.