IndiGo shares nosedive 8% after weak September quarter performance

Near-term outlook remains challenging as supply outpaces demand

Shares of InterGlobe Aviation, the parent company of India’s largest airline IndiGo, dropped by 8 per cent on Monday after high costs in a tepid aviation season led to a weak September quarter (Q2FY25) performance.

 

The stock plunged 8 per cent to close at Rs 4,015.50 apiece on the BSE. During the day, it slumped 13.42 per cent to Rs 3,778.50.

On the NSE, shares sank 8 per cent to Rs 4,015. Intra-day, the stock plummeted 13.42 per cent to Rs 3,780. The company's market capitalisation eroded by Rs 13,481.88 crore to Rs 1,55,107.61 crore.

 

Higher costs from grounded aircraft, along with a decrease in revenue per available seat kilometer (RASK) and an increase in non-fuel cost per seat kilometer (CASK) led to the airline's performance falling short of analyst expectations.

 

In addition to the weak Q2, brokerages such as Nuvama Research had downgraded the stock over a valuation premium to global low-cost carriers, slowing domestic demand, and overcapacity concerns.

Analysts led by Jal Irani of the brokerage expect the near-term outlook to remain challenging as capacity growth outpaces demand growth affecting passenger revenues per available seat kilometre.

 

The airline posted a consolidated net loss of Rs 986.7 crore in Q2FY25 against a net profit of Rs 188.9 crore in Q2FY24. A Bloomberg survey of brokerages had estimated an average profit of Rs 134 crore for the September quarter.

 

“The negative surprise was due to rising cost pressure of aircraft on ground (AOG)-related costs. This was partially offset by compensation from OEMs (original equipment manufacturers), mitigation expenses for AOG and cost inflation,” Elara Capital said in a research note following the airline's Q2FY25 results. 

 

“Basically, the expenses have gone up including airport charges. In fact, the fuel (costs) did not pinch, but other costs rose. This is where most of the expectations have gone wrong,” said G Chokkalingam, founder and head of research, Equinomics Research.

 

Analyst expectations for a positive quarter were based on higher domestic passenger traffic and a significant international share when it comes to available seat kilometres (ASKs). An ASK measures an airline’s carrying capacity to generate revenue based on available seats on an aircraft times the number of kilometres it flies on a defined flight.

 

IndiGo remains focused on its international expansion, with plans to add three destinations by the financial year’s end, bringing its total to 40.

 

“The share of international capacity (in terms of available seat kilometres) would then reach 30 per cent,” the company’s CEO Pieter Elbers said in a call with investors.

 

While the September quarter is generally weak for the airlines, the airline's long-term view of the Indian aviation market remains strong, Elbers added.

 

Other roadblocks include infrastructure challenges, which led to congestion in key locations like Delhi and Mumbai, and posed a significant hurdle for the airline in Q2FY25.