ADD on InterGlobe Aviation - Playing first fiddle - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

IndiGo reported a significantly improved performance in 2QFY21, with an EBITDAR of Rs 2.8bn (vs. loss QoQ). Cash burn has reduced to Rs 250mn/day (from Rs 300mn QoQ). Management has deferred its planned QIP to Dec-20 as capacity has been increased to 60% currently (vs. 37% utilisation in 2Q) and the airline has monetised assets worth Rs 18bn in the quarter. In the downturn, IndiGo has gained substantial market share, which now stands at 58% (vs. 50% in 1Q). We raise our EBITDAR estimates by ~11% over FY21-23 to factor in the improved cost efficiencies and the dominant position of IndiGo. We set a Sep-22 target price of Rs 1,350 at 7x EV/EBITDAR to factor the market share gains (vs. 6x earlier) Key risks: an increase in oil prices on the downside, further opening of aviation services on the upside.

2QFY21 Financials: Revenue at Rs 27.4bn recovered QoQ (Rs 7.67bn) as the airline travel restrictions were gradually removed. PAX yields at Rs 3.8 were higher 8% YoY due to increased charter flights. Ancillary revenue (19% of sales vs. 12% YoY) was higher 3x QoQ due to increased cargo revenues. Despite a challenging quarter, IndiGo reported a positive EBITDAR of Rs 2.8bn (margin of 10.2%). Lower fuel prices (23.6% of sales vs. 38.4% YoY), a 40% YoY reduction in employee expenses and fx gain of Rs 5.1bn, led to the above. PAT loss came in at Rs 11.9bn (vs. loss of Rs 10.6bn YoY).

Call and other takeaways: (1) The management has deferred its decision on the QIP to Dec-20, given that the capacity could be increased soon to 80% and travel during the festive season will aid revenues. The airline has monetised assets and raised Rs 18bn in 2Q. The unrestricted cash balance now stands at Rs 69.7bn. (2) IndiGo is currently operating at ~58% capacity levels (average capacity of 37% in 2Q). (3) Its market share stands at 58% currently vs. ~50% QoQ. (4) Daily cash burn rate has reduced to Rs 250mn bs Rs 300mn QoQ, driven by cost-cutting initiatives. (5) 8 aircraft were added, and the fleet strength stood at 282. The fleet is expected to stabilise in FY22 as the older CEO aircraft are phased out.

Shares of InterGlobe Aviation Ltd was last trading in BSE at Rs.1308.65 as compared to the previous close of Rs. 1331.2. The total number of shares traded during the day was 114728 in over 5976 trades.

The stock hit an intraday high of Rs. 1346 and intraday low of 1296.75. The net turnover during the day was Rs. 151709030.

Source : Equity Bulls

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