IndiGo Q1 preview: Jet Airways' closure, oil price fall to drive earnings

Markets await more clarity on Gangwal-Bhatia spat and hope for an early resolution.

When InterGlobe Aviation, the parent company that operates IndiGo, will announce the airline’s April-June quarter result for fiscal year 2019-20 (Q1FY20) on July 19, investors would hope for more clarity, and perhaps a truce between two promoter groups – Rahul Bhatia and Rakesh Gangwal.

The relations between the two promoter camps had gone sour recently over decision making and corporate governance issues. Gangwal has accused Bhatia of indulging in Related Party Transactions (RPT) in favour of InterGlobe Aviation Enterprise (owned by Bhatia).

“Overhang of the battle will remain… As we are not aware about the details of the agreement between the two, risks of government intervention have increased and one of them is likely to take legal course,” says Gagan Dixit, Vice- President, institutional equities, Elara Capital.

According to reports, Ministry of Corporate Affairs has asked IGE to respond to the allegations levelled by Gangwal. 

For tomorrow’s Board meeting, M Damodaran, the board chairman of IndiGo, has proposed to include at least two of the proposals made by Gangwal, according to a Business Standard report. The Board is likely to consider expansion of aircraft fleet along with changing board composition. While the chairman is expected to propose an expansion of the board to 12 members, the IGE group would get the right to appoint six directors and Rakesh Gangwal group two. Four of the directors will be designated independent, it said. READ FULL REPORT HERE

As far as the financials are concerned, analysts expect the country’s largest airline to post stellar Q1 numbers on the back of low crude oil prices, benefit from Jet Airways’ temporary closure and fleet expansion.

“Significant yield expansion (+10 per cent YoY) along with robust passenger growth, up 25 per cent YoY, will drive revenue growth,” analysts at Edelweiss Securities said in an earnings preview note.

They expect the airline to report a 45 per cent YoY rise in revenue from Rs 6,512 crore in Q1FY19 to Rs 9,428.6 crore. The revenue was Rs 7,883.3 crore in the quarter ended March, 2019.

Analysts expect the airline’s adjusted profit after tax (PAT) between Rs 608.4 crore and Rs 859 crore for the recently concluded quarter. It clocked a profit of Rs 589.6 crore in the fourth quarter of financial year 2018 – 19 (Q4FY19) and Rs 27.8 crore in the June quarter of the previous fiscal (Q1FY19). Dixit of Elara also echoes a similar view and sees the airline’s Q1FY20 profit after tax at around Rs 850 crore.

A fall in crude oil price, which contributes close to 40 per cent towards an airline’s cost could drive up the earnings before interest, tax, depreciation, amortization, and rent (EBITDAR) margin on a yearly basis.

Analysts at Prabhudas Lilladher peg EBITDAR at Rs 2,453.7 crore, up 138 per cent YoY and 19.3 per cent sequentially.  The EBITDAR margin is expected at 26.5 per cent for the recently concluded quarter.

According to data by aviation watchdog, Directorate General of Civil Aviation (DGCA), IndiGo held 49.4 per cent market share between January and May, 2019 and carried over 11 million passengers.

According to Elara Capital, IndiGo could see a 31 per cent YoY increase in passenger load (PAX) and a 39 per cent increase in the airline capacity. As of 31st March 2019, the airline had a fleet of 217 aircraft.