InterGlobe Aviation (INDIGO) reported a lower-than-expected Q3FY23 PAT of Rs 1,420 crore led by higher-than-expected fuel and employee costs. Revenue passenger kilometers (RPK) were in line with our estimates at 24.5b. Passenger load factor (PLF) was higher at 85.1% with available seat kilometers (ASK) of 28.8b and yield at `5.4.
Bookings remain strong for Q4FY23. Available seat kilometers (ASK) is likely to increase 45% y-o-y in Q4. Oil marketing companies (OMCs) shifted to MOPAG (Mean of Platts Arab Gulf) pricing in Q3FY23 because of which prices have started to come down and also given the management clarity regarding ATF price mechanism. Yield is expected to remain lower than Q3. That said, according to our airfare tracker, the 30-day domestic forward price was down 13% m-o-m in Jan’23 and the 15-day price was down 22% m-o-m. Management highlighted that bookings for Q4FY23 have been strong even as seasonality would come into play in this quarter.
The company has signed a codeshare agreement with Turkish Airlines, which helps its customers fly to 26 different cities in Europe, aiding INDIGO to expand its footprint in the international market. The company is already operating at 105% of pre-Covid level. Affordable ticket prices and network expansion would be the strategies to be followed going forward.
Due to the underperformance in 9MFY23, we cut our Ebitda/EPS estimates by 9%/26%, respectively, for FY23, while keeping our FY24/FY25 estimates unchanged as of now. We reiterate our Neutral rating on the stock with a TP of Rs 2,055 premised on 7x Dec’24E EV/EBITDAR.
Despite the near-term challenges, Indigo has been taking more pre-emptive measures. However, the resurgence of airlines (Air India, Spice Jet) and the entry of the new player Akasa along with comeback Jet Airways would reduce Indigo’s market share going forward.