Q1FY24 Review: InterGlobe Aviation: Earnings soar to record highs

3 Aug 2023 , 02:25 PM

Indigo reported Q1FY24 quarterly PAT of Rs31bn (11% beat), which is more than its highest-ever annual profits. The quarter reflected strong demand, good pricing, high load factors and low Crude price. Although Q2 would be weaker QoQ (typical seasonality), analysts of IIFL Capital Services expect the industry to be in a favourable spot with strong demand and low competitive intensity, at least for a couple of years. Air India would start receiving sizeable aircraft deliveries only from mid-CY2025. Domestic traffic has grown 20% YoY in Apr-Jul 2023, and is well placed to meet analysts of IIFL Capital Services estimate of 15% growth this year. Indigo is growing faster in domestic, while aggressively adding international capacity. Overall, they expect Indigo’s passenger volumes to grow 25% in FY24. Beyond FY24, analysts of IIFL Capital Services conservatively expect Indigo to deliver 12% vol. growth. They upgrade their FY24 EPS by 15%, but maintain FY25 EPS. They are 52- 59% above Street. Retain BUY with TP of Rs 3,300 (28% upside). 

Q1 beats analysts of IIFL Capital Services high expectations: 

Revenue grew 30% YoY on a volume growth of 30% (passenger count). Ebitda margin improved from 5% to 30% YoY, due to higher load factors and lower crude price. Earnings in the quarter came in at Rs31bn (11% beat). This quarterly profit is more than Indigo’s highest-even annual profits. Cash flow generation in Q1FY24 was strong at Rs35bn. 

Well placed for a strong FY24, despite seasonally weak Q2: 

Mgmt. mentioned that yields in Q2 would be much lower than Q1 (by teen %). While this is partly seasonal (Q2 is the weakest quarter in the year), there is also an attempt to prop up load factors in a low-volume quarter. Domestic traffic is up 20% YoY in Apr-Jul 2023, and well-set to meet analysts of IIFL Capital Services estimate of 15% growth in FY24. Analysts of IIFL Capital Services expect Indigo’s passenger volume to grow 25% in FY24 with market-share gains in domestic and high growth in international. Although crude has bounced from low, it is still in line with their existing assumption of USD 85 for the year. 

Industry outlook positive as competitive intensity is low: 

Indigo’s largest competitor in India (Tata Group/Air India) is likely to get sizeable aircraft deliveries only from mid-CY2025. Industry consolidation and low capacity addition by competition is positive for the industry. This combined with strong demand, bodes well for profitability.