Credit Suisse Sees InterGlobe Aviation Soaring. Here’s Why
Air carrier IndiGo’s superior position among peers, strongest balance sheet and lowest cost structure are likely to augur well for its parent company InterGlobe Aviation Ltd.
That’s the recommendation coming from global brokerage Credit Suisse as it initiates coverage on the firm with an ‘Outperform’ rating and target price of Rs 1,650, an upside of 34.5 percent from yesterday’s levels. The price target is also the second most bullish after Elara Securities’ Rs 1,734 bet, Bloomberg data showed.
The company currently trades at Rs 1,227.1, which is 11 percent below the Bloomberg consensus target price of Rs 1,398. Shares of InterGlobe Aviation rose as much as 2.36 percent to Rs 1,256.1 after the research report was published. Other aviation stocks also started the day on a strong note.
High Air Traffic
Air traffic is one of the fastest growth indicator, rising 22 percent between financial years 2016 and 2017, and 17 percent till November of the current financial year, Credit Suisse said in its report. This coupled with a supportive economy will provide a cyclical upside to growth in the industry, signalling good days ahead for its market leader too, it said.
The company has the strongest balance sheet and lowest cost structure from which it benefits to a great deal, the report said.
For four financial years up to March 2020, Credit Suisse expects Indigo's revenue to have a compounded annual growth rate of 23 percent, earnings before interest, taxes, depreciation, amortisation and rent/restructuring costs at 27 percent and earnings at 36 percent.
The airlines’ revenue generated per seat-kilometer has risen to Rs 3.77, as compared to both- five year average and current financial year’s performance. But costs incurred for the same metric remained flat at Rs 1.85.
Other Factors That Are Helping:
- Largest market share (40 percent).
- Frequency of flights.
Risks related to fuel and load factor remain.