Iran-Israel conflict: IndiGo, SpiceJet shares brace for likely $100 a barrel oil hit

Shares of InterGlobe Aviation Ltd (IndiGo) and Spicejet Ltd were trading mixed in Thursday's trade amid reports of Iran-Israel trading further air attacks, with the US President Donald Trump declining to say if his country would join Israel's campaign. Flight schedules tracked by analysts see no major disruptions so far. But they raised their oil price assumptions to $100 a barrel mark.

Nuvama Institutional Equities said the Israel-Iran tensions have threatened to drive oil prices to $100 a barrel due to the potential closure of the Strait of Hormuz (15 per cent of global oil supply likely to be disrupted) with a war premium already built into current prices. 

"Even if the market sees only a 30 per cent risk of closure, that can still be enough to fuel prices towards $85 a barrel in the near-term," Nuvama said.

Choice Broking sees crude oil prices rallying to $95 a barre level in coming weeks in case Iran Israel tensions do not ease. It, however, does not expect crude prices to sustain higher levels. 

Flights schedules 
Scheduled flights in the June quarter stand at 3,46,000, set to grow at healthy 11 per cent YoY as domestic flights rise 8 per cent and international flights by strong 27 per cent. 

"IndiGo’s growth is in line with industry as its scheduled flights are set to rise 11 per cent YoY—with domestic flights increasing by 9 per cent and international by about one–third in Q1FY26E. IndiGo’s domestic market share is thus expected hover around 64% reported in April 2.  

Nuvama said IndiGo has been unable to fully pass on past oil spikes. It believes Pakistan airspace closure is likely to have a low 1–3 per cent direct impact on IndiGo’s FY26E EBITDAR. That said, the strategic disadvantage to
foreign carriers risks 30 per cent a year international PAX growth targeted
by IndiGo. 

Stock recommendations
For now, the brokerage has retained ‘HOLD’ each on SpiceJet and IndiGo amid uncertainty and high valuation.

SpiceJet has one buy, one hold and one sell call.

"We have factored in that SpiceJet’s entire fleet will be operational in  FY27F. We have valued the company’s business at 8x FY27F EV/EBITDAR, in line with  the median EV/EBITDAR over Mar 2016-Mar 2019. Sharp uptick in domestic traffic is an  upside risk while compression in profit margin is a downside risk," InCred Equities said on June 15 while suggesting a target price of Rs 47.