The brokerage firm Investec in its latest report has downgraded InterGlobe Aviation (IndiGo) to a “Sell” rating, setting a target price of Rs 4,050, a steep 32% cut from current levels.
According to the brokerage, the stock’s rally appears increasingly out of sync with the company’s financial and operational outlook.
Let’s take a look at the four reasons why Investec is sounding cautious about the stock –
Investec on IndiGo: A tough quarter ahead
The brokerage firm expects a weak start to FY26, projecting a 13% year-on-year drop in net profit for Q1, and a 22% decline sequentially. Even with a 14% YoY increase in capacity (ASKs), lower passenger yields and a sharp drop in Pratt & Whitney compensation are expected to hit earnings.
As per the brokerage report, “weaker yields and lower P&W payouts are expected to outweigh any fuel cost benefits.”
Investec on IndiGo: Revenue versus costs
As per the brokerage report IndiGo’s unit revenue (RASK) is projected to fall 7% YoY, while unit cost (CASK) will decline at a slower pace of 4% YoY. The result as per the brokerage report is a tightening of RASK-CASK spreads by 22%, which is likely to dent profitability.
The brokerage added, “Elevated non-fuel operating cost pressures offset gains from lower fuel prices.”
Investec on IndiGo: Slip in the demand despite capacity bump
Although the airline is expanding its capacity, demand appears to be lagging. As per the brokerage report, Passenger load factor (PLF) is forecast to decline 86%. This is slightly lower than the previous year and quarter.
Yields, which shows the average fare paid per passenger, are also projected to drop 3% YoY, the report noted.
Investec on IndiGo: Valuation
One of the major flags raised by the brokerage is what it calls a growing disconnect between IndiGo’s share price and its fundamentals.
The brokerage noted in its report, “Despite 11% Y/Y earnings decline in FY25 from the peak in FY24, and with further pressure expected in FY26 as P&W compensation and Mahakumbh tailwinds subside, the stock has surged 40% over the past year. This rally appears increasingly disconnected from earnings fundamentals, likely driven by speculation around potential index inclusion and broader macro sentiment, rather than underlying business strength.”