Q3FY23 Review: InterGlobe Aviation: 3Q results reflect strong demand and pricing

6 Feb 2023 , 01:53 PM

Revenue grew 61% YoY on 34% volume growth. Yield (revenue/RPKM) increased 22% YoY and 6% QoQ to Rs5.38. Ebitdar margin improved 21ppt QoQ and 80bp YoY to 21.3% (250bp beat). If we exclude the MTM hit on Forex liabilities, Ebitdar margin came in at 25.3%, a 14-quarter high. Absolute Ebitdar beat our estimate by 15% and PAT beat by 32%. If not for the impact of grounding of aircraft (supply side issues), Q3 results may have been even stronger.

A positive surprise in recent quarters has been the jump in yield to above Rs5/RPKM vs Rs4 pre-Covid. Although yield may soften QoQ in Q4 (seasonal), it is higher YoY. Recent moderation in Crude is likely to aid margins. Our FY24 and FY25 Ebitdar margin assumptions (21-22%) are lower than Q3FY23 (25%, excl. Fx) and FY15-FY18 (27-35%). One negative for airlines over the past 3 quarters is the widened spread between Crude and ATF, which means ATF has not come down at the same pace as Crude. If this spread were to narrow, margin outlook would improve further.

As capacity growth has been slower, Analysts of IIFL Capital Services have seen uptick in load factor (occupancy). Fares have also seen a step jump; this, combined with lower fuel price has improved margin outlook. This is reflected in Indigo’s Q3 margin (ex-forex) being at a 14-quarter high. Indigo generated Rs46bn free cash in M9FY23, getting back on its consistent FCF-generation path as was the case pre-Covid. Analysts of IIFL Capital Services now expect a smaller loss vs. earlier in FY23. Excluding Fx loss, they expect profit of Rs25bn in FY23. FY24/FY25 EPS are largely unchanged.

Analysts of IIFL Capital Services maintain Buy with target price of Rs 2700.