The brokerage firm Kotak Institutional Equities has reaffirmed its ‘BUY’ rating on InterGlobe Aviation (IndiGo), setting a target price of Rs 5,100. This valuation is based on a 20x multiple of the airline’s projected FY2027 EPS.
According to the firm, IndiGo’s positive outlook is driven by its operational efficiency, strong domestic performance, and strategic management of forex risks, even in the face of challenges like rising forex rates.
3 reasons why Kotak Institutional has Buy on InterGlobe Aviation
Let’s take a look at the three key reasons why the brokerage firm has maintained its ‘BUY’ rating on IndiGo:
– Domestic and International Performance
IndiGo has outperformed its competitors by leveraging its supply network and maintaining high load factors (around 90%) during Q3FY25. Furthermore, the airline has done this without making significant pricing adjustments.
According to the brokerage firm, “Indigo’s outperformance in 3QFY25 reflects its smart use of the supply card and network to its advantage when the sector demand is bouncing back and peers have limited cards to play.”
In addition to this, IndiGo’s international operations now account for 28% of its Available Seat Kilometer (ASK), with the airline closing in on a 20% market share internationally.
– Efficient cost and forex management
The airline’s ability to capture the benefits of declining fuel costs while managing its forex exposure effectively is another factor noted by the firm.
“The company shared its strategy of hedging 60-70% of its 12-month cash exposure linked to FX movements net of its natural hedge through currency hedging instruments,” the brokerage firm noted.
The budget carrier posted a 14% YoY revenue growth and a 12% beat in reported PAT during 3QFY25, with adjusted PAT at Rs 38.5 billion, a 26% YoY growth.
– Long-Term growth potential and resilient outlook
Despite challenges like rising costs and a projected 2.5% annualised depreciation in the US$/INR exchange rate over FY2025-27, the brokerage firm sees IndiGo’s long-term prospects as strong. Further, it has also adjusted its assumptions for yields and ancillary revenues, expecting a 1.9% compound annual growth rate (CAGR) in the next two years
The target price of Rs 5,100 reflects these assumptions, along with the airline’s ability to manage rising costs and forex impacts effectively.
IndiGo: Q3FY25 performance
IndiGo’s parent company, InterGlobe Aviation, posted a consolidated net profit of Rs 2,448.8 crore for Q3 FY25, a 18.3% decline from the Rs 2,998.1 crore profit reported in the same quarter last year. The drop comes despite a steady rise in revenue from operations, which grew 13.6% YoY to Rs 22,110.7 crore from Rs 19,452.1 crore in Q3 FY24.
The airline’s EBITDA showed a modest growth of 0.7%, reaching Rs 5,178.6 crore compared to Rs 5,143.6 crore in the previous fiscal’s corresponding quarter. However, the EBITDA margin slipped to 23.4% from 26% in Q3 FY24.
IndiGo: Stock performance
InterGlobe Aviation share price is currently trading at Rs 4,195.00, a modest gain of 0.80% today.
Over the past five days, the stock has risen by 1.76%, but it has seen a decline of 10.44% over the past month. In the last six months, the share price of the company has dropped by 5.55%.
However, on a yearly basis, InterGlobe Aviation has delivered impressive returns, surging by 44.78%. The stock reached a 52-week high of Rs 5,035.00 and a low of Rs 2,847.00, with a market capitalisation currently standing at Rs 1.62 lakh crore.