Shares of Interglobe Aviation, the parent company of Indigo Airlines appreciated to the tune of 1.71% to reach a 52-week high of ₹ 2,577.50 apiece on the National Stock Exchange (NSE) after a global brokerage raised its target price.
UBS maintained its ‘buy’ rating on the stock with a target price of ₹ 3,300. This translates to an upside of 28.56% as compared to its current share price. The brokerage’s improved outlook was driven by the following reasons:
Higher Yields
UBS said that yields are now higher by 30-40% as compared to the pre-COVID phase, as the demand has reached similar levels. A consistently strong passenger load factor despite high ticket price points to rising consumer appetite for flying, underscoring the sector’s structural growth.
Higher EPS, rising revenue passenger kilometres (RPK)
The brokerage has forecasted a higher EPS of ₹ 82 for Q1FY24E which is 37% higher than Indigo’s record-high annual EPS in FY18. It expects Q1 yields to rise 6% year on year with available seat kilometres (ASK) up 7% quarter on quarter or up 18% year on year with PLF remaining at 89%, leading to a rise in revenue passenger kilometres (RPK) by 13% quarter on quarter or 32% year on year.
Lower fuel costs
Crude oil prices have corrected and the brokerage expects gasoline per ASK to drop by 15% year on year. UBS expects a 30.8% EBITDA margin in the first quarter. It added that Interglobe Aviation is now very well placed to deal with downturns and can handle any sudden up move in crude oil or US Dollar without major capital burn. The company has low fuel costs due to falling crude oil prices, lower VAT and higher engine efficiency.
Suspension of Go First’s Operations
Indigo has emerged as the biggest beneficiary of the suspension of Go First’s operations. Indigo’s market share with respect to carrying passengers jumped to 61.4 percent in May from 57.5 percent in April, according to data from the Directorate General of Civil Aviation (DGCA).
Interglobe Aviation is a large-cap company with a market capitalization of ₹ 97,534 crores. It is India’s largest passenger that operates as a low-cost carrier. It believes in “low fares, on-time flights, and a courteous and hassle-free service” for its customers.
Written By Simran Bafna
Disclaimer
The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Dailyraven Technologies or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
