A320neo passenger jet, operated by IndiGo (Photographer: Balint Porneczi/Bloomberg)

Why IndiGo’s Stock Fell Most In Over Two Years

Shares of InterGlobe Aviation Ltd., parent of the budget carrier IndiGo, extended their losses today and fell as much as 20 percent— the most in more than two years—after its quarterly profit missed estimates.

Analysts lowered their target price on the stock after the carrier’s net profit dropped 73 percent from the year-ago period to Rs 118 crore in the quarter ended March because of lower airfares and weak passenger yields. IndiGo’s average fare per passenger per kilometre fell for the first time in four quarters.

Also Read: IndiGo Q4 Profit Misses Estimates As Fuel Expenses Rise

That comes when the market regulator is probing the cause of the fall in share prices ahead of the resignation of the carrier’s President Aditya Ghosh, Bloomberg reported. The airline’s shares have now fallen for four straight trading sessions. The stock has fallen about 2.5 percent so far this year. Excluding today’s losses, it had returned 11 percent gains.

Around 70 percent of the analysts tracked by Bloomberg have a ‘Buy’ rating on the stock. After the earnings, the consensus 12-month target price dropped 5.3 percent to Rs 1,431 apiece, implying a 19 percent upside from the current levels.

Here’s what the brokerages had to say:

IDFC Securities

  • Downgrade to ‘Neutral’ from ‘Outperform’ and cut target price to Rs 1,293 from Rs 1,476 with a potential downside of 3.7 percent.
  • Earnings for the previous quarter was weak and sharply below estimate due to lower yields.
  • Yields have been weak as airlines have not passed on the impact of higher fuel prices.
  • Earnings estimate for financial year 2019 reduced by 19.5 percent and for financial year 2020 by 11.1 percent due to higher fuel cost.
  • Expects yields to improve in the first quarter of the current financial year in response to higher fuel prices and favourable seasonality

SBICAP

  • Maintain ‘Buy’ and reduced target price to Rs 1,324 from Rs 1,532 with a potential downside of 1.4 percent.
  • Big profit miss on reversal in yields amid rising costs.
  • Ramp-up of NEO deliveries to help augment capacity by 25 percent.
  • Preparatory work for launching long-haul international operations.
  • Cut earnings per share estimates by 23 percent for financial year 2019 and 18 percent for financial year 2020 to factor in higher crude and pressure on yields.

Kotak Securities

  • Maintain ‘Buy’ with a target price of Rs 1,500 with a potential upside of 11.7 percent.
  • Weak yields mar previous quarter’s performance.
  • Lower yields attributed to weakness in near-term fares.
  • Expect yields to normalise over the next two months.
  • Current yield scenario unsustainable, given the weak financial status of competition.

Edelweiss

  • Maintain ‘Buy’ and cut target price to Rs 1,651 from Rs 1,655 with a potential upside of 22.9 percent.
  • Yields disappoint; Volumes and cost surpass estimates.
  • Yields plunged on muted industry pricing environment.
  • Expect robust 20 percent volume CAGR over the three financial years up to March 2020.
  • Ramp-up of NEOs to moderate rising oil price concern

Motilal Oswal

  • Maintain ‘Neutral’ and cut target price to Rs 1,318 from Rs 1,400 with a potential downside of 1.8 percent.
  • Aggressive capacity addition in a lean quarter weighs on profitability.
  • Intense competition took a toll on yield.
  • Rising crude oil price — a major threat.
  • Peak valuations leave little room for upside.

Credit Suisse

  • Maintain ‘Outperform’ and cut target price to Rs 1,575 from Rs 1,650 with a potential upside of 17.2 percent.
  • Weak fourth quarter with surprisingly lower yields and expectedly higher crude prices.
  • Lower yields and higher crude prices contracted the spread.
  • Fleet addition remains strong; New NEOs to drive cost efficiencies.
  • Expect industry growth to remain strong.
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