IndiGo Q2 preview: Rupee depreciation may dent EBITDAR margin

The Board of InterGlobe Aviation-led IndiGo will meet on Thursday, October 24, to report its September quarter earnings for the financial year 2019-20 (Q2FY20) amid fresh feud between promoters Rahul Bhatia and Rakesh Gangwal.

Once considered resolved, differences between the two resurfaced on October 1, when Bhatia filed litigation against Gangwal in London under the shareholders' agreement, dated April 23, 2015. Since then, the stock of India’s largest airline has slipped 8.5 per cent, as against a 1.6 per cent rise in the benchmark S&P BSE Sensex.

That said, analysts expect the airline to report robust growth in earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR), and revenue numbers for the recently concluded quarter.

“Healthy yield expansion (up 5 per cent YoY) along with robust revenue passenger kilometres (RPKM) growth (up 25 per cent YoY) will drive revenue growth of 27 per cent YoY,” wrote analysts at Edelweiss Securities in a result preview note. They peg the revenue at Rs 7,905.3 crore, up 28 per cent, from a revenue of Rs 6,185.3 crore clocked in the corresponding quarter of the previous year (Q2FY19).

Analysts at Prabhudas Lilladher, however, expect a higher revenue at Rs 8,364.7 crore, up 35.2 per cent YoY, on the back of increased international operation. The low-cost carrier’s (LCC’s) international market share was at 21 per cent of the overall capacity as on July 31, government data show. The international expansion aids lower average fuel costs as aviation turbine fuel (ATF) on overseas routes is exempt from state VAT and central excise tax.

As for EBITDAR, analysts on an average estimate the metric to grow up to Rs 1,433.4 crore, up in the range of 994 per cent YoY to 1,190.2 per cent YoY, but fall 46 per cent sequentially. The airline had logged an EBITDAR of Rs 111.1 crore in Q2FY19 and Rs 2,652.2 crore in Q1FY20.

“Although ATF prices were down nearly 8.7 per cent YoY for the quarter, margins gains are set to be offset by depreciating rupee (Rs 1.6 against the dollar since the start of the quarter),” said Prabhudas Lilladher in a result expectation note. The EBITDAR margin is pegged at 16.8 per cent.

PROFIT OR LOSS?

Analysts remain divided on whether the airline would post a profit for the period under review or incur a loss.

According to analysts at Prabhudas Lilladher, the airline is likely to post a net profit of Rs 158.3 crore, as against a loss of Rs 652.1 crore incurred in Q2FY19. This would, however, be a nearly 87 per cent sequential fall from a profit of Rs 1,200.5 crore logged in Q1FY20.

Analysts point at a seasonally leaner quarter for the reduced profit. According to data by Directorate General of Civil Aviation (DGCA), air traffic grew by 1.2 per cent in the month of September as against a growth of nearly 4 per cent in August. Accordingly, IndiGo’s market share at the end of Q2FY20 stood at 47.7 per cent, down from 49 per cent logged in Q1FY20.

As for Edelweiss Securities, the brokerage expects the airline to report a loss of Rs 639.2 crore “due to forex losses on lease liability along with higher lease rentals”. The airline has inducted 7 new aircraft in Q2.