HSBC Expects IndiGo To Post Rs 4,100-Crore Loss In FY22, Slashes Target Price
HSBC expects IndiGo, operated by InterGlobe Aviation Ltd., to report a loss of Rs 4,100 crore in the ongoing fiscal because of low demand, rising costs and cash burn.
That prompted the research firm to cut IndiGo's 12-month price target to Rs 1,200, implying a downside of about 30% from Monday's close. It maintained the 'reduce' rating.
Of the 22 analysts tracking the stock, 11 have a ‘buy’ rating, three suggest a ‘hold’ and eight recommend a ‘sell’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 0.8%.
The Indian aviation industry is facing its most challenging period as demand has disappeared and recovery with the ongoing second Covid-19 wave seeming highly uncertain, HSBC Global Research said in a note. Macro factors also continue to be unfavourable with the supply-demand equation highly skewed.
"While the fleet growth seems low, the industry is taking delivery of large-sized narrow-body aircraft; that means the capacity growth could still be in low double digits," HSBC said. "On the other side, the jet fuel price has risen sharply, up almost 32% since the start of the year, while the rupee has depreciated against the dollar by 2% and is trading at 73.8. One-year forward rupee/dollar is trading at 77.6 which could add significant pressure on costs."
According to HSBC:
Current traffic is down almost 83% from the February peak and is at about 13% of pre-pandemic levels in 2019.
April-June is usually the busiest quarter when the industry earns 45-50% of full-year profit, which will be wiped out this year.
An estimated 8 crore domestic passengers will take to skies in FY22 in India, down 44% from pre-Covid-19 levels.
IndiGo's recovery will most likely not be seen until the October-December quarter as the July-September quarter tends to be the weakest usually.
Last year's trend suggests that recovery in demand could be delayed by at least 9-12 months, according to the note. Although the vaccination programme could boost demand a little, it said the Covid-19 spread is far wider this year.
Keeping that in view, HSBC's estimates:
A net loss for the airline at around Rs 4,100 crore in FY22, saying that the consensus is far too bullish with its forecast of a net profit worth Rs 78 crore during the period.
IndiGo could burn another Rs 4,500-5,000 crore in FY22 and its net worth could turn negative, after burning Rs 7,000-7,500 crore worth of liquidity last fiscal. (IndiGo has approved proposal to sell shares worth Rs 3,000 crore to raise capital).
"So we believe that the earnings momentum is set to fall sharply and that could be negative for the stock," HSBC said.
Shares of IndiGo fell as much as 0.65% to Rs 1,692 apiece compared with S&P BSE Sensex's rise of as much as 1.5%.