IndiGo shares jump over 13% after disastrous Q2 show; Is this a good buy?

Shares of IndiGo parent InterGlobe Aviation Ltd fell over 13 percent in Monday’s trading session after the company reported a loss for the September 2024 quarter. The company reported negative earnings for the first time in two years, causing shares to react sharply.

InterGlobe Aviation slipped into the red, reporting a loss of Rs 987 crore in the second quarter ended September 2024. The loss was expected, but it exceeded market expectations. However, the airline company’s revenue from operations jumped 14 percent year-on-year (YoY) to Rs 16,970 crore in the quarter under review.

Ebitda for the second quarter of the current fiscal fell marginally to Rs 2,434 crore and margins contracted 210 basis points to 14.3 percent. During the quarter under review, the budget carrier’s passenger ticket revenue stood at Rs 14,359 crore, up 10 per cent, while ancillary revenues grew 21 per cent YoY to Rs 1,875 crore.

Following the quarterly earnings, IndiGo shares fell 13.42% to Rs 3,778.50 on Monday, with its total market capitalization falling below the Rs 1.5 lakh crore mark. However, the stock settled at Rs 4,364.65 on Friday after falling 3 percent. The stock has corrected nearly 25 percent from its 52-week high of Rs 5,033.20 reached on September 12, 2024.

Brokerages had mixed reactions to the stock following the quarter, with price target and rating cuts a common observation. However, some analysts believe the stock is a bargain at lower levels, but others believe current headwinds related to oil prices and seasonality in the sector could limit growth.

The sharp decline in PBT was due to temporary issues – grounding and related compensation, as well as unexpected fuel inflation, Kotak Institutional Equities said. Another drawback was the increased seasonality in the context of a sharp increase in supply/demand in the previous year, it said.

“Overall demand trends remain healthy, as reflected in double-digit growth forecasts for the full year. We reduce FY27 estimates by 10 per cent and fair value by 4 per cent to Rs 5,200 carried forward. We take note of recent efforts to expand infrastructure, increase customer loyalty, expand distribution coverage and attempts to expand offerings beyond flights,” the company added with a “buy” note.

IndiGo is committed to enhancing its international presence through strategic partnerships and loyalty programs. The company served 106.7 million customers in FY24 with a net addition of 63 aircraft. According to Motilal Oswal Financial Services, the company had eight strategic partners with 27 per cent international stake in ASK in FY24.

“The management has also taken several proactive measures to enhance its brand awareness in the global market as it looks to capture a larger share of growth in the international market in the coming years. We reiterate our Neutral rating on the stock with a target price of Rs 4,130.” “, he added.

“After IndiGo’s performance has outperformed US and European peers by 108 to 133 percent since January 22, we are downgrading IndiGo to ‘hold’ higher valuations relative to global peers and an above-average valuation premium to global peers, slowing domestic demand and raising concerns about excess capacity,” the company said. Nuvama Institutional Actions.

Continuous selling by promoters while IndiGo moves to a hybrid model is adding to the risk, cutting EBITDAR in FY25 and FY26 by 14 percent and 7 percent, with a revised target price of Rs 4,415, he said. as EBITDA missed consensus by 46 percent due to a surprise net loss.

Foreign brokerage firm Jefferies maintained a ‘buy’ rating on the stock but cut its target price to Rs 5,100 from Rs 5,225 earlier. “Higher costs associated with grounding aircraft have reduced productivity. The AOG (landing) impact peaked in the second quarter and IndiGo’s capacity growth will improve,” it added, with a positive outlook over the medium term.