IndiGo tanks 4% on record Q1 net loss of Rs 2,844 crore, recovers later

The airline recouped morning losses and was trading 1.73 per cent higher ahead of its Board meeting, scheduled for later today, to consider raising Rs 2,000 crore

Shares of InterGlobe Aviation - parent of IndiGo airline - declined 4 per cent to Rs 873 on the BSE on Thursday after the airline reported record net loss of Rs 2,844.3 crore in April-June quarter of FY21. The airline had reported record net profit of Rs 1,203 crore in the year-ago quarter. 

“Closure of scheduled operations till May 24, 2020 and lower capacity deployment thereafter on account of Covid-19, significantly impacted the quarterly results. lndiGo reports net loss of Rs 2,844.3 crore,” said the airline in a statement. The loss before tax stood at Rs 2,842.6 crore for Q1FY21.

The airline recouped morning losses and was trading 1.73 per cent higher at Rs 925.5 apiece on the BSE ahead of its Board meeting scheduled for later today. In comparison, the S&P BSE Sensex was at 38,331 level, up 260 points or 0.68 per cent. The stock hit an intra-day high of Rs 936.5.

"A meeting of the Board of Directors of our Company is proposed to be held on July 30, 2020 to discuss and consider, among other things, raising of funds through issue of equity shares, and/or foreign currency convertible bonds (“FCCB”), and/or non-convertible debentures, and/or any other eligible instruments or securities representing equity shares or convertible into or exchangeable for equity shares, through qualified institutions placement, rights issue, FCCB issuance, or such other permissible mode or combination thereof," it said in a regulatory filing. READ HERE

Chief Financial Officer Aditya Pande said the airline, owned by Interglobe Aviation Ltd, would consider raising even more than Rs 2,000 crore and the board would meet on Thursday to discuss this.

 

On the revenue front, the Gurugram-based airline’s revenue from operations stood at Rs 766.7 crore for the quarter under revenue, down 91.8 per cent year-on-year (YoY), from Rs 9,420.1 crore reported in Q1FY20. It declined 90.7 per cent from revenue of Rs 8,299.1 crore earned in Q4FY20. Including other income of Rs 377.1 crore, total revenue came in at Rs 1,143.8 crore, down 88.3 per cent YoY, from Rs 9,786.9 crore reported in Q1FY20.

Operationally, the airline's ASK (Available Seat Kilometers) -- a measure of passenger carrying capacity. -- came in at 2.1 billion, down 91 per cent YoY from 23.3 billion. Besides, the RPK (revenue passenger kilometer), which shows the number of kilometers traveled by paying passengers, tanked 93.8 per cent YoY to 1.3 billion from 20.7 billion.

"In 1QFY21, RPK came in at 1.3b (-94% YoY and QoQ); thus, revenue stood around Rs 770 crore (down 92 per cent YoY). RASK was lower YoY, but higher QoQ, led by huge pent-up demand for passenger mobility," said analysts at Motilal Oswal Financial Services in a post-result update. They believe that long-term demand and stability in the sector remain key challenges; thus remain cautious on the stock.

"We revise our forecast EPS down to -INR163/+INR64 for FY21/FY22 (from -INR169/+INR77). The stock trades at 14.1x FY22 EPS of Rs 64.4 and 4.2x FY22 adj. EV/EBITDAR. We value the company at 16x FY22 EPS of Rs 66.4 to arrive at target price of Rs 1,030," they said, maintaining 'neutral' call.

Cash and Cash Equivalents

At the end of the June quarter of FY21, the airline’s cash and cash equivalents stood at Rs 18,449.8 crore, as against Rs 17,337.1 crore at the end of June quarter of FY20. Of this, free cash reserve was Rs 7,527.6 crore.

“We have taken steps to reduce our unit costs and increase our liquidity by making our fleet more efficient with continuing to substitute older CEO aircraft with NEO's, prioritizing flying with our NEOs over older CEO, putting on hold discretionary expenses, deferring certain capital expenditures, etc. In order to sustain operations, we also had to take actions to cut employee costs through pay cuts, leave without pay and reduction in workforce,” the airline said.

The debt, on the other hand, stood at Rs 23,551.6 crore, the financial statements show.

Analysts at Spark Capital maintain their positive stance on the stock as its strong balance sheet, they believe, demonstrates wherewithal to withstand turbulent period. "IndiGo’s dominant

market position (nearly 50 per cent domestic market share) makes it well-placed to benefit from demand recovery. Furthermore, expect incremental cost efficiencies through replacement of CEO fleet to NEO thereby improving fuel efficiency and reducing maintenance & engine overhaul expenses; new measures to control fixed expenses (~40 per cent of overall cost); and deferral of non-core expenses, to aid liquidity (additional Rs. 50-60bn liquidity through measures)," it said in a result update note. The brokerage maintains 'buy' call on the stock with a target price of Rs 1,100.

On the downside, analysts at Kotak Institutional Equities gave 'sell' rating to the stock post the results, with a fair value price of Rs 900, given the demand uncertainty in the sector.

"Visibility on demand ramp-up remains limited given the extended lockdown situation. Even once lockdowns are fully lifted, we expect demand ramp-up to be very gradual. We cut FY2022-23E EPS by 6-7 per cent as we bake in a weaker INR," it said in its report.

In a post results call with analysts, Chief Executive Ronojoy Dutta said: “There is volatility in demand. The first part of June after reopening was going strong but then it started changing as number of Covid-19 cases went up.” He said pocket lockdowns were proving to be a hurdle.

IndiGo has undertaken measures such as salary cuts and layoffs to conserve Rs 3000 crore of cash, but has already dipped into most of the saved cash to keep operations afloat, its executives said.

The SpiceJet benefit

What further could be bolstering buying sentiment among investors could be the red flags raised by auditors of rival firm SpiceJet on Wednesday. The auditor has expressed doubt on the airline's ability to continue as a going concern as two successive annual losses have led to erosion of its net worth.

SpiceJet posted a pre tax loss of Rs 807 crore in Q4FY20 due to an increase in finance charges, depreciation and foreign exchange loss as against Rs 56.3 crore profit in same period last year. The fourth quarter result was announced on Wednesday.

"The company has accumulated losses and its net worth has been fully eroded. The company has incurred a net loss during the current and previous year and, the company’s current liabilities exceeded its current assets as at the balance sheet date," the airline's auditor S R Batliboi & Associates observed. These conditions indicate the existence of a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern, the auditor said.