The Indian aviation sector is no doubt going through a turmoil. The unfortunate crash of the Air India flight from Ahmedabad and the investigations thereonhave no doubt cast a pall of gloom on core issues like airline safety and growth opportunity for the Indian aviation sector. International brokerage house, Jefferies however, feels India continues to be a compelling aviation market with the long-term story impact. Their top bets in the sector are IndiGo and GMR airports.
Why is Jefferies betting on IndiGo, GMR Airports
Jefferies believes that India’s travel industry continues to demonstrate healthy long-term fundamentals. According to them, “IndiGo is leading the growth in aviation, and we believe IndiGo is a value proxy consumer stock that is currently trading cheaper than most consumer stocks.”
As per Jefferies’ estimates, the IndiGo stock is trading at 12x FY26/FY27 EV/EBITDA. “The valuations look reasonable for a mid-teens earnings growth profile, an undisputable dominant presence in Indian aviation, a steady aircraft delivery outlook, and new growth levers such as accelerated international expansion.”
Highlighting the factors supporting their choice of GMR Airports, they explained that it was a “strong proxy on India aviation growth, lucrative non-aero business, rollout of city-side land development projects, and earnings benefitting from recent revision in aero tariffs at DIAL and legal win in regulatory order.”
Jefferies on expanding scope of international travel
Jefferies pointed out that international travel in India is accelerating at a faster pace than domestic, particularly post-COVID.
According to them, Indian airlines, “especially Air India and IndiGo, are expanding overseas routes, adding more capacity on international routes, and also banking on the new orders for wide-body fleets.”
They outlined how IndiGo’s international capacity mix has expanded to “30% of capacity from early double-digits a decade ago.” They see the airline company on track to “achieve 40% mix by 2030.” The growing internationalisation of traffic, they pointed out, “also has a positive rub-off for travel retail spending at airports at top metro airports.” This is also another factor that’s supporting their positive call on these two stocks.
Jefferies on challenges ahead for Indian Aviation sector
That said, Jefferies doesn’t expect it to be a bed of roses here on. Despite a strong growth outlook, “the aviation space faces headwinds, including global aircraft shortages and supply-chain bottlenecks that can impact aircraft deliveries to India, hurting industry growth,” they explained.
The other big concern, as per Jefferies, is the “high ATF taxation that inflates operation costs.”
Apart from this, “recent geopolitical airspace issues, which force longer, costlier route deviations, weak MRO infra driving dependence on foreign facilities,” contribute to inefficiencies, as per Jefferies
They also anticipate some spillover effects of the AI crash and consider it a challenge for the sector.