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InterGlobe Aviation - Weak quarter, awaiting timelines for fundraise - HDFC Securities

Posted On: 2021-07-28 22:53:24 (Time Zone: IST)

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

IndiGo reported a higher-than-expected Q1FY22 loss of INR 31.7bn. Weak demand due to COVID and elevated fuel prices led to the above. The aviation industry is facing multiple headwinds, including (1) weak demand - corporate travel is down to 7% of sales (vs 20% earlier) and (2) rising fuel prices - which were higher by ~12% QoQ. We await clarity on the timing of IndiGo's proposed QIP, which will strengthen its balance sheet as cash burn levels have risen. Maintain REDUCE. We lower our EBITDAR estimates by ~8% over FY23/24E and set a revised target price of INR 1,575, based on 7X EV/EBITDAR on Jun-23E earnings. We had downgraded IndiGo to REDUCE in Q4FY21: Recovery priced in.

Q1FY22 financials: Revenue, at INR 30bn, declined 52% QoQ, affected by the second COVID wave. PAX yields were lower at INR 3.5 (-6% QoQ). However, ancillary revenue grew to 24% of sales vs 20% QoQ due to increased cargo loads. Fuel costs were elevated and came in significantly higher at 40.4% of sales vs 30.8% QoQ (the average fuel cost is up ~12% QoQ). Forex loss came in at INR 3.6bn vs INR 1.17bn QoQ. Consequently, IndiGo reported an EBITDAR loss of INR 14bn (vs a loss of INR 15bn YoY) and a net loss of INR 31.7bn (vs loss of INR 28.4/11.6bn YoY/QoQ).

Key highlights: (1) Cash burn increases: The daily cash burn has increased 1.75x QoQ to INR 334mn (INR 190mn QoQ) due to weak demand affected by COVID. (2) Fundraise: To strengthen the balance sheet, the company's fundraising plan of INR 30bn via QIP has been approved by the board, although timelines on the same are awaited. IndiGo's free cash reduced to INR 56bn in Q1FY22 vs INR 71bn QoQ while debt level has risen to INR 316bn vs. INR 298bn QoQ. (3) Near-term outlook: In Q1FY22, load factors dipped sharply to 59% vs 70% QoQ. In Jul-21, the management expects revenue to come back to the Apr-21 level of INR 15.4bn (INR 6.7/9.6 in May/Jun-21). However, the domestic capacity will reach the pre-COVID level only by Q4FY22, as more individuals are vaccinated, and corporate travel increases (~7% of sales vs 20% earlier). As per the management, corporate travel will recover only to 75% of its earlier level, once traffic normalises.

Shares of InterGlobe Aviation Ltd was last trading in BSE at Rs. 1667.1 as compared to the previous close of Rs. 1706.8. The total number of shares traded during the day was 114267 in over 8411 trades.

The stock hit an intraday high of Rs. 1690 and intraday low of 1627. The net turnover during the day was Rs. 188854353.

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