Foreign brokerage UBS has upgraded share price target for InterGlobe Aviation Ltd (IndiGo) sharply to Rs 3,300 from its earlier target of Rs 2,690, saying the aviation firm's June quarter earnings per share (EPS) would be higher than the entire FY18's annual EPS. IndiGo, UBS said, remains very well equipped to tackle any downcycle and can handle any sharp up move in crude or the US dollar without significant cash burn.
The stock price target suggests a potential 34 per cent upside over Friday's closing price of Rs 2,466.80.
UBS said the improved outlook is driven by strong underlying demand lifting passenger load factors (PLF); higher yields aided by strong demand and suspension of GoFirst's operations; and lower fuel cost due to falling crude prices, lower VAT and higher engine efficiency.
"Yields are now higher by 30-40 per cent than pre-Covid, as demand has reached similar levels (FY20). A consistently strong PLF despite high ticket prices points to rising consumer appetite for flying, underscoring the sector's structural growth. Our FY24/25E PAT forecasts are 80 per cent/14 per cent above consensus and we see upside. Given its strong prospects, we do not see significant risks from the potential sale of the Gangwal stake, as we would expect them to be absorbed by the market," UBS said.
With Tata's acquisition of Air India, the Indian aviation sector has become a near duopoly, boding well for pricing, UBS said.
"There remains plenty of headroom for international travel growth and we expect this to be a key driver of IndiGo's future growth. International yields remain similar to domestic yields, but with a better cost structure (lower taxes on fuel and better efficiency considering long rides). We moderate our yield estimate from Rs 5.13 in FY23 to Rs 4.65 for FY25E and expect ASK growth of 18 per cent in FY24 and 15 per cent in FY25," UBS said.
The foreign brokerage expects the June quarter EPS at Rs 82 for Q1FY24, up 37 per cent over IndiGo's record-high annual EPS in FY18. It estimated Q1 yields to grow 6 per cent sequentially, available seat kilometres (ASK) to grow 7 per cent quarter-on-quarter (QoQ) or 18 per cent year-on-year (YoY), with PLF at 89 per cent, implying revenue passenger kilometres (RPK) growth of 13 per cent QoQ (32 per cent YoY).
As crude oil prices have corrected, it estimated fuel per ASK to fall 15 per cent QoQ. Forex trends appear neutral for now; the June 2023 closing rate is the key, it said while estimating IndiGo's Q1 Ebitda margin at a 30.8 per cent.
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