InterGlobe Aviation trades firm in weak market; zooms 108% from 52-week low

Thus far in the calendar year 2019, it has rallied 25 per cent on the expectations of margins recovery from an increase in airfares, drop in crude oil prices and reduction in capacity by Jet Airways

Shares of InterGlobe Aviation, parent of IndiGo, were up 2 per cent to Rs 1,452 on the BSE in early morning trade in an otherwise weak market on Monday, after Credit Suisse upgraded the recommendation on the stock to outperform from neutral. The foreign brokerage firm raised the price target to Rs 1,650 from Rs 1,075.

In comparison, the benchmark S&P BSE Sensex was down 1 per cent or 364 points at 37,801 at 09:36 am. The stock has appreciated 108 per cent from its 52-week low value of Rs 697 touched on October 9, 2018 in intra-day deal.

Thus far in the calendar year 2019, the low-fare airline has rallied 25 per cent on the expectations of margins recovery from an increase in airfares, drop in crude oil prices and reduction in capacity by Jet Airways. The benchmark index was up 5 per cent thus far in the current calendar year.

“Indian airlines currently face substantial capacity constraints against a robust demand environment (15 per cent PAX growth YTD). About 14 per cent of India’s total fleet size of around 665 is grounded, led by Jet Airways (around 80 of 120 due to financial stress / 737 Max – see link) and Spicejet (13 of 76 are 737 Max; around 27 per cent of ASKs in February). These supply constraints are clearly RASK-accretive in the interim for IndiGo, which is aggressively adding capacity on the Airbus platform,” according to analysts at JP Morgan.

The brokerage firm believes a favorable RASK (Revenue Per Available Seat Mile) growth for India airlines until there is a favorable resolution of Jet’s financial viability and Boeing’s fix on Max planes.

“The exact ASK impact is not known, as we are not aware of the nature of the fleet being grounded (i.e., wide/narrowbody), but we estimate that it could be up to 15 per cent of the industry. The supply situation should normalize if Jet Airways secures long-term funding, in our view. We believe IndiGo, with around 400 planes on order and 43 per cent domestic market share, will be best suited to fill any capacity gap,” JP Morgan said in a report dated March 20, 2019.