Aviation shares in focus; IndiGo hits record high, SpiceJet soars 7%

InterGlobe Aviation, the parent firm of IndiGo airlines, hit a 52-week high at Rs 2,155 and has rallied 9 per cent on the BSE in intra-day trade on hopes of positive future prospects.

Shares of aviation companies were in focus with InterGlobe Aviation, the parent firm of IndiGo airlines, recording a 52-week high at Rs 2,155. The stock has so far rallied 9 per cent on the BSE in intra-day trade on Friday, and in the process has surpassed its previous high of Rs 2,023.60 touched on 15 September, 2021.

Shares of SpiceJet, India’s second-largest private airline, have also surged 8 per cent to Rs 81.95 amid heavy volume. The trading volume at the counter jumped over three-fold with a combined 15 million equity shares changing hands on the NSE and BSE. In comparison, the S&P BSE Sensex was up 0.95 per cent at 59,702 at 10:55 am.

In the past one month, InterGlobal Aviation has surged 25 per cent after ICRA reaffirmed the company's short-term rating at [ICRA] A1. However, the long-term rating of the company was downgraded by one level from [ICRA] A+ to [ICRA] A, and the outlook remained negative.

ICRA has acknowledged the company's strong market position, cost competitiveness and healthy liquidity profile amongst its peers but attributed the downgrade to prolonged disruption caused by the Covid-19 pandemic on it's financials. ICRA expects the Indian airline industry to remain adversely impacted in the near-term and recovery in passenger traffic and yields to be gradual.

Despite the fact that the aviation industry is going through an unprecedented crisis, the company's balance sheet remains strong. Regardless of all the challenges, the company's focus throughout the pandemic has been to manage its cash levels, improve its cost structure, run a high quality airline with highly engaged employees and position itself for the future, the rating agency said.

Recovery in demand for Indian carriers can receive a major boost if international travelers swap prospects of international travel by domestic, as has happened in the case of China. Among Indian carriers, Indigo is the one that continues to add capacities and may have a disproportionate share in the swap volume, according to analysts at Kotak Securities.

A responsible price leader, Indigo is well-placed to benefit from healthy spreads starting 4QFY22. Its strategy of matching the lowest fares coupled with its healthy cash balance and aftermath of Covid on peer’ balance sheets should yield durable spreads for the sector, the brokerage firm said stock update with maintain ‘buy’ rating and target price of Rs 2,400 per share.

Air travel has seen rise in demand with travel and lockdown related norms easing in India. According to DCGA, around 6.7 million domestic passengers travelled by air in August 2021, 33.83 per cent higher than 5 million who travelled in July 2021. READ MORE