Q3FY24 Review: InterGlobe Aviation: Demand-supply in the balance for now

5 Feb 2024 , 12:03 PM

InterGlobe Aviation (Indigo)’s Q3 EBITDAR came in 17% above IIFL’s estimate, partly due to higher yields and partly compensation from OEMs for aircraft grounding. Indigo’s ‘grounded aircraft’ count has increased from 40+ aircraft in October to 70+ currently, due to engine inspections. This situation would take few quarters to normalize. As a result, Indigo’s ASK growth guidance for Q4 is moderate at “up 12% over the year-ago quarter”, translating to 7% sequential drop. Indigo’s ASK growth in 9MFY24 was 25% over the year-ago quarter. Domestic passenger traffic growth (industry) has moderated from 20% over the year-ago quarter in H1FY24 to 9% in Q3 and 5% in January 2024. As both demand and supply growth have moderated, the equation is in the balance for now, supporting load factors and yields. However, industry-level supply may be constrained in the near-term due to P&W engine inspections and Boeing 737 Max issue.

If competition adds capacity aggressively, the balance may turn unfavorable, believe analysts at IIFL Capital Services. They have upgraded their FY24/FY25 EPS estimates by 34% and 23%, respectively, with higher yields and compensation from OEMs. They have maintained their Buy recommendation on the stock.