Downgrades

INDIGO reported a 26% YoY decline in EBITDA to INR16.2b in 2QFY25 and a net loss of INR9.9b (vs. our est. net loss of INR6.8b).

Improved vaccination drive and decline in infections led to higher passenger load factor. Replacement of old aircraft with fuel efficient fleet is at an accelerated pace, which is expected to be completed by FY24, will bring down operating cost. Passenger traffic growth to pick-up at higher pace starting from FY23...

improved sequentially despite Pax services being impacted by 2 nd Covid wave. However, SJET's adjusted losses widened YoY/QoQ to Rs8.7bn largely, on account of lower scale of operations and input cost inflation. SJET continues to focus on managing cash flows through 1) renegotiating rentals/ maintenance costs 2) deferring payments to vendors 3) capital raise via QIP & hiving off cargo arm and 4) Rs1.3bn raised via ECLGS scheme. SJET is looking to hive off its cargo arm for a consideration of Rs25.5bn on slump sale basis which shall enable greater focus on cargo business and raise...

SJET's Q4FY21 revenue plunged 35% YoY and it reported an adjusted net loss of Rs 2.4bn, translating to negative EPS of Rs 3.9

InterGlobe Aviation's (IndiGo) Q3FY21 RASK stood at Rs 3.2.

compensation) down 7.4% while non-Fuel CASK increased by 33.5% due to Covid-19 led disruption with operations being suspended in late March. While market leader Indigo reported 1% yield growth in the same period, SJET reported 10% decline in yields despite industry leading load factors impacted by 1) increased exposure to intensely competitive metro to metro routes and 2) dual class fleet operations. SJET continues to negotiate with Boeing regarding compensation for the grounded Boeing 737 Max, we shall keep a close eye on payment terms and actual flow of compensation....

medium term, IndiGo is focused on optimizing costs and enhance liquidity by 1) Exploring new networks and revenue model (Charter, Cargo etc) 2) Reducing unit costs by cutting down all possible discretionary expenses 3) efficient utilization of fleet 4) 30% reduction in employee bill through mix of salary cuts, leave without pay and layoffs and 5) Monetizing owned aircrafts through SLB. Through these initiatives, the management aims to generate liquidity to the tune of Rs50-60bn over the year. IndiGo's plan of returning 123 less efficient A320ceos over the next 2 years while continuing to induct fuelefficient A320neo family will further help reduce unit costs. We expect FY21...

Despite higher cash burn of ~INR300m per day, the company was successful in its initiatives to create additional liquidity and thus realized ~35% of its earlier target of INR3040b, leading to free cash reduction of ~INR14b (v/s reported loss of INR28.4b). INDIGO plans to replace CEO aircrafts gradually, as earlier scheduled, by the end of Dec22; hence we build ASK of 85.8b for FY22 (-11% to FY20 For FY22E, we assume sentiment would improve from 3QFY22, resulting in the normalization of PLF at ~75% (although, expected PLF remains low at 75% for the full-year FY22 v/s average PLF of ~86% over FY1620). To note, the fare bands were recently further extended till the end of Nov20, and the permanent enforcement of fare bands could be a huge dampener on the Aviation industry as a whole, weakening sentiment for the regulated We have built-in a crude price forecast of USD40/bbl / USD50/bbl for INDIGOs fuel cost constitutes ~35% of the total cost (in FY20), and according to our EPS sensitivity, aircraft fuel savings of even 10% would translate into an EPS change of ~14% for INDIGO in FY22.

IndiGo is focusing on 1) Reducing unit costs by cutting down all possible discretionary expenses 2) Efficient utilization of fleet 3) Right sizing capacity in line with demand and 4) explore new networks and revenue model. Through these initiatives, the management aims to generate additional liquidity to the tune of Rs30-40bn in the coming 9 months. With 123 less efficient A320ceos to be returned over the next 2 years and given the uncertain demand environment, we do not expect the rate of induction of fuelefficient A320neo family to match the exit of A320ceos. We expect FY21 capacity to decline by 46% YoY while FY22 capacity is likely to be 90% of...

26 November 2019 INDIGO has guided to bring down its high maintenance cost significantly from FY22 as deliveries for A321neos replace the older aircraft and the share of A321neos increases in the total fleet. However, the directive from the DGCA can delay this guidance due to replacement of older aircraft, which in turn might require extension of current leases and result in continued high maintenance cost. It may take 5-6 months to catch up the lagged supply, creating difficulties for replacement of engines according to the DGCAs directive. Considering the sizeable amount of modification (110 engines) and the supply lag from the aircraft manufacturer, the company may not be able to replace all of the required 110 engines in FY20, in our view. As a result, there is no change in our EPS estimate for FY20/21. Our estimates are highly sensitive to (a) ticket yield, (b) PLF and (c) crude price assumption.

While IndiGo's 2QFY20 results have disappointed, we believe that (1) The carrier will benefit from improving industry dynamics in the medium term as the airline enjoys a dominant market share of ~48% (2) Crude prices remain benign which will allow for better cost management (3) Further, valuations at current levels (6.6/4.8x FY21/22E EV/EBITDAR) are undemanding. The multiples are impacted due to the ongoing dispute amongst the two promoters. Any resolution of the above will lead to a re-rating of the stock. IndiGos 2QFY20 results were significantly below expectations (loss of Rs 10.6bn) due to increased operating expenses. We are reducing our EBITDAR estimates by ~20% over FY20-22 to factor in the above. Maintain BUY with a revised TP of Rs 1,610 (6x Sep-21 EV/EBITDAR). The sharp correction in the stock is pricing in the weak results.

We have increased our earnings estimates over FY20/21E by 11/3% to factor in the higher yield assumptions. We are lowering valuation multiples to factor in the recent differences between promoters. Retain BUY, but quick resolution will help further rerating, given favourable competitive dynamics. Helped by lower competition in 1QFY20, INDIGOs yields increased sharply (+13.7/10.8% YoY/QoQ), driving revenue growth of 45/20%. Our estimates rise to bake higher efficiencies, with market share now ~50%. However, friction between promoters will weigh on investor confidence. Valuation multiples will remain constrained, meanwhile. Our revised TP is Rs 1,785 (6x FY21E EV/EBITDAR vs 8x earlier).

the last one year. Promoter Rakesh Gangwal RG' with 37% stake in Indigo has asked for SEBI's intervention. Point of contention by RG are corporate governance issue, related party transactions (RPT) between Indigo & IGE group (IGE is controlled by...

InterGlobal Aviation Ltd (Indigo) is one of the most efficient low cost carriers (LCC) with a market share of 40% in Indian aviation sector. Despite robust passenger growth of 33% YoY in Q2FY19, the reported PAT loss was Rs652cr due to rise in fuel cost & forex loss. Engine issues have resolved and aircraft deliveries have picked-up with 20 aircraft deliveries this quarter. We expect earnings to pick-up in H2FY19 led by pass through of higher fuel cost and cost rationalisation....