Jefferies, a well-known brokerage house, is betting big on key aviation play, InterGlobe Aviation-parent firm for IndoGo. It has a ‘Buy’ rating and a target price of Rs 6,300 per equity share. It implies almost 20% upside from current levels. The company’s management reiterated that long-term tailwinds will support the aviation industry’s growth in India.
What’s driving Jefferies’ bullish call on IndiGo?
Here are the key reasons why Jefferies expects a sharp surge in the IndiGo share price over 12 months-
Jefferies on InterGlobe Aviation: Focus is on cost leadership
The company’s focus is on cost leadership and timely ordering of the fleet, amid the consolidation space. Plus, the international segment is a key growth lever with new fleet and routes, said Jefferies.
Following the report from Jefferies, InterGlobe Aviation’s share price surged 1.3% to a high of Rs 5,331.50 on the BSE.
Jefferies on InterGlobe Aviation: Management reiterates expectations of steady cash flow
The company has a dominant positioning in the Indian aviation market owing to its disciplined low-cost model and scaling up of its international expansion strategy. With over 60% domestic market presence, a young and fuel-efficient fleet, and a vast order book exceeding 900 aircraft, IndiGo is well-positioned to capture rising air travel demand in India, both in domestic and international travel segments, said the management.
Once again, the company said that it expects a steady flow of minimum 1 aircraft/week, which could also accelerate in the medium term, given the pending orderbook. IndiGo targets a fleet size of more than 600 by FY30 vs a 400-aircraft fleet currently.
Jefferies on InterGlobe Aviation: Geopolitical tension to be disruptive in short-term
The geopolitical tensions will be disruptive in the short term, which is generally limited and transient in nature, according to the company’s management.
Talking about the industry, as per the recent Airbus forecast, global passenger traffic, measured in Revenue Passenger Kilometres (RPKs), is forecast to grow at an average annual mid- to long-term rate of 3.6% until 2044. “Domestic India traffic is expected to see the fastest 8.9% CAGR for this period, still only reaching the absolute RPK point where China stands currently,” noted the Jefferies report.
InterGlobe Aviation stock performance
The share price of IndiGo fell 5.87% in the last five trading sessions. It has declined by 4.4% in the past one month. However, the carrier’s stock has given a return of almost 21% in the last six months. IndiGo’s share price has risen 24% in the past one year.