IndiGo shares end 5% higher, airline becomes world's 3rd largest by market cap

Shares of InterGlobe Aviation Ltd (IndiGo) surged 5% on Wednesday to hit new all-time high as the company hiked airfare by up to 25 per cent on select prominent routes amid the heavy demand in the aviation sector. With today's rally, the airline became world's third-largest airline by market cap, according to reports.

The budget carrier has increased its fare by 20-25 per cent on the back of rising demand after the cancellation of Vistara flights. Ongoing disruption at Tata Group airline Vistara has led to a sharp rise in airfare. Besides Vistara’s 10 per cent capacity reduction, changing demand-supply dynamics ahead of the busy summer season is keeping air travel an expensive affair.

Shares of InterGlobe Aviation rose 4.19 per cent to Rs 3,783.90, hitting its all-time high and the total market capitalization of the company topped Rs 1.45 lakh crore mark. The airline counter had settled at Rs 3631.65 in the previous trading session. The stock has surged more than 102 per cent from its 52-week low at Rs 1,865.70. Later, the stock ended 4.82% higher at Rs 3806.85 on BSE. Its market cap stood at Rs 1.46 lakh crore on close.

Commenting on InterGlobe, Kranthi Bathini, Director of Equity Strategy at WealthMills Securities said that turbulence in the operations of Vistara and rising demand of travel due to revenge tourism is pushing the stock of IndiGo high. Also, stabilized oil prices are also supporting the stock prices for IndiGo.

"We need to understand that the rising disposable income of an Indian household has made air travel more prominent and leisure holidays now have become a part of lifestyle. Also, the upcoming holiday season across the nation will keep the airports busy in the coming months," he said.

Global Brokerage firm UBS has a target price of Rs 4,000 on the IndiGo shares, while Jefferies had given it a target price of Rs 3,435 after its analysts met about two days ago. ICICI Securities also has a 'buy' call on the stock with a price target of Rs 4,009.

Prabhudas Lilladher (PL) increased EBITDAR assumptions by nearly 4 per cent over the next 2 years as we tweak ASKM forecast given the growth commentary. Overall, PL expects a revenue CAGR of 13 per cent over FY24E–FY26E with an EBITDAR margin of 23.9 per cent /23.2 per cent / 21.9 per cent in FY24E/FY25E/ FY26E. It retained 'accumulate' with a target price of Rs 3,961.

The Indian aviation market is highly underpenetrated currently, which provides huge room for growth for domestic players. This growth trajectory will be aided by increasing airport infrastructure and capacity additions in terms of aircraft orders, which could make India the third-largest aviation market in the world by CY35, said Motilal Oswal in its recent report.

IndiGo highlighted its three-pillar strategy for growth: affordable fares, lower cancellations and on-time performance. It also seeks to enhance customer experience and invest in talent. It aims to significantly expand its international network. The management has also been making efforts to increase its global brand awareness, it added with a 'neutral' view and a target price of Rs 3,510.

However, InCred Equities is not positive on IndiGo. It believes that IndiGo’s incremental groundings in 4QFY24 would not impact tariff as IndiGo would lease more planes to meet its capacity target and competitors are unscathed and their fleet is underutilized. IndiGo’s entire fleet will be operational in FY26F, and will increase the industry capacity by 14 per cent and dampen tariffs.

"We have a 'reduce' rating on the stock with a target price of Rs.2,000, valuing it at 8.5x FY26F EV/EBITDAR, versus a median multiple of 8.8 times. We believe the slight discount is warranted as the time for resolution of grounded fleet is uncertain, we expect IndiGo’s ASK to grow in line with the industry and a reduction in the gap in RASK-CASK between IndiGo," InCred added.