What Analysts Have To Say About IndiGo’s Fourth-Quarter Performance

Most analysts expect Interglobe Aviation Ltd.’s operations to recover in the next financial year, aided by cost cuts and strong balance sheet.

The parent of IndiGo—India’s largest airline—reported a loss in the quarter ended March as the government-mandated travel restrictions amid the coronavirus outbreak hurt passenger volumes. The company’s revenue, too, grew at its slowest pace since listing.

While most analysts maintained their bullish investment recommendation for IndiGo, they cut earnings estimates for the current and the next financial years. A few are also expecting huge losses in the financial year ending March 2021 amid staggered lifting of restrictions, gradual scale-up of operations and low consumer confidence.

Shares of Interglobe Aviation jumped as much as 13.87%—the most in over two months—at Rs 1,076 apiece. That compares with a 1.17% gain in the Nifty 50 Index.

Of the 22 analysts tracking the stock, 13 have a ‘buy’ rating, seven recommend ‘sell’ and the remaining suggests a ‘hold’. The 12-month Bloomberg consensus implies an upside of 20.6%.

Here’s what the brokerages have to say about IndiGo’s fourth-quarter results:

• Edelweiss
• Maintains ‘hold’ with a target price of Rs 961 apiece.
• Bleak demand outlook; tailwind from yield and fuel prices.
• Expects huge losses in 2020-21 due to lower passenger load factor and negative operating leverage.
• Banking on a recovery in operations in 2021-22.

JM Financial

• Maintains ‘sell’ with a target price of Rs 700 apiece.
• Quarter in line with estimates; long road to recovery.
• Cost and liquidity initiatives will help the company tide over a challenging year.
• Significant movement in dollar/rupee and crude price (40% of costs) remains a key monitorable.

Morgan Stanley

• Maintains ‘overweight’ with a target price of Rs 1,701 apiece.
• Fourth quarter beat estimates; focus on conserving cash and improving efficiency.
• Passenger traffic will be slow to recover.
• Cost structure and competitive position are likely to improve in the downturn.
• Valuation in the context of earnings potential is attractive.

Credit Suisse

• Maintains ‘outperform’ and cuts target price to Rs 1,300 from Rs 1,500 apiece.
• Maintains ‘outperform’ on likely resumption of profitability by FY22.
• Fourth quarter performance and NEO aircraft induction is a positive.
• Cuts FY21/22 earnings estimate by 56%/33% on slower ramp up.

Prabhudas Lilladher

• Maintains ‘accumulate’ but cuts target price to Rs 995 from Rs 1,200.
• Air traffic demand unlikely to match pre-Covid levels in the near term.
• IndiGo continues to remain better placed than peers and is likely to emerge stronger.
• Cuts FY21/22 Ebitdar estimates by 54%/14%, given staggered removal of restrictions, gradual scale up of operations and low consumer confidence.

JP Morgan

• Maintains ‘neutral’ and hikes target price to Rs 970 from Rs 960.
• Lack of certainty timing and extent of demand recovery.
• Liquidity, cost management and fleet mix encouraging.
• IndiGo to benefit in the long term as survivor of the Covid-19 crisis.

Kotak Institutional Equities

• Maintains ‘sell’ and cuts target price to Rs 900 from Rs 925.
• Decent fourth quarter print but future uncertainties galore.
• Lack of clarity on demand revival drives ‘sell’ rating.
• Anticipates a longer drawn recovery with a large loss expectation for FY21.

Motilal Oswal

• Maintains ‘neutral’ but cuts target price to Rs 1,080 from Rs 1,300.
• The company will not see any new net capacity additions in FY21/FY22.
• Long-term demand and stability in the sector remain a key challenge.

Ambit Capital

• Maintains ‘buy’ but cuts target price to Rs 1,660 from Rs 1,750.
• Higher yields led to lower-than-expected losses in fourth quarter.
• Net capacity addition likely to be zero.
• Expects negative spreads in FY21; third consecutive year of negative spreads.