Analysts have cut IndiGo share price target for 2025 after the InterGlobe Aviation-owned airline reported a deep net loss of Rs 987 crore for the September quarter (Q2) of the current financial year 2024-25 (FY25). IndiGo share price target has been cut by up to 17 per cent for the next one-year.
Consequently, InterGlobe Aviation (IndiGo) share price IndiGo plunged 13.4 per cent to Rs 3,778.5 per share, hitting a six-month low during the day. The stock price of India's largest airline by market share was trading at its lowest levels since April 25, 2024.
Moreover, with today's decline, IndiGo share has corrected 27.4 per cent from its 52-week high level of Rs 5,033.20 that it hit on September 12, 2024.
In Q2 FY25, IndiGo posted a consolidated net loss of Rs 986.7 crore owing to higher fuel costs, increased airport charges, higher aircraft lease expenses, more aircraft on ground (AoG), seasonal downturn, and lower yields in the international market.
This loss marks the first time in seven quarters that IndiGo has slipped into the red, with the airline last reporting a net loss of Rs 1,583.3 crore in the second quarter of 2022-23. The company had posted a consolidated net profit of Rs 188.9 crore in the year ago quarter.
Further, while IndiGo's consolidated revenue from operations grew 13.6 per cent year-on-year (Y-o-Y) to Rs 16,697 crore, its earnings before interest, taxes, depreciation, amortisation, and rent (Ebitdar) declined 0.51 per cent to Rs 2,434 crore, compared to Rs 2,446.50 crore in the year ago quarter. Ebitdar margin contracted 210 basis points (bps) to 14.3 per cent from 16.4 per cent in Q2 FY24.
"IndiGo has been accruing compensation from Pratt & Whitney for the AoG as part of other operating income since Q3 FY24. Stripping off the same to calculate adjusted Ebitda, the Y-o-Y growth has been tailing off considerably," noted analysts at Nuvama Institutional Equities.
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This, brokerage said, was due to increased cost per available seat kilometer (CASK) given an inflationary environment in the industry and passenger revenue per available seat kilometer (PRASK) growth unable to cover the same. As the industry is struggling to pass on additional costs to customers due to a weak demand environment, airlines a taking a hit on their margins.
Nuvama Institutional Equities has downgraded IndiGo stock to 'Hold' given premium valuations versus global peers and other low-cost carriers; industry PRASK deteriorating on capacity-adds; slower rate of capacity addition at IndiGo than competition; actual passenger growth lagging growth implied by historical real GDP multiplier; and continued promoter stake sales.
The brokerage has cut FY25 and FY26 Ebitdar estimate by 14 per cent and 7 per cent, respectively. The lowered share price target stands at Rs 4,415.
On its part, the management said IndiGo faced headwinds related to groundings and fuel costs in Q2 FY25. The company, however, has turned the corner as the number of grounded aircraft and associated costs have started to reduce.
For October 2024, the management said IndiGo is seeing solid demand led by the festive season, and there could be a natural comeback in demand in Q3 FY25.
Industry-wide airfare tracker, too, shows that the 30-day domestic forward prices for IndiGo are up 16 per cent quarter-on-quarter (Q-o-Q) at Rs 7,020 and the 15-day prices are up by 35 per cent Q-o-Q a Rs 7,255 in so far in Q3 FY25.
Thus, the management has kept the capacity guidance and outlook intact with long-term guidance of doubling the capacity in place.
"We cut our net profit estimates by around 2-16 per cent over FY25-FY27 given the ongoing cost challenges. While the cost structure problem will get resolved soon with the reduction in AoG, early signs of pricing pressure are visible as passenger RASK is likely to witness a correction by early to mid-single digit in Q3 FY25," said those at Prabhudas Lilladher.
The brokerage has retained its 'Accumulate' rating with a lower target price of Rs 4,919 (earlier Rs 5,177), valuing IndiGo stock at 10-times to FY26 Ebitda estimate.
Long-term growth intact
That said, analysts believe IndiGo is striving to improve its international presence through strategic partnerships and loyalty programs as the company had eight strategic partners with a 27 per cent international share in terms of ASKs in FY24.
The management has also taken several preemptive measures to increase its global brand awareness as it expects to capture a bigger share of growth in the international market over the coming years.
"Due to the underperformance in Q2 FY25, we lower our Ebitda estimate for FY25/FY26/FY27 by 5 per cent/9 per cent/10 per cent. However, we raise our earnings per share (EPS) estimates by 7 per cent each for FY26/FY27 to account for lower tax as accumulated losses stand at Rs 13,000 crore," Motilal Oswal Financial Services said.
The brokerage maintained its 'Neutral' rating on the stock with a target price of Rs 4,130.