InterGlobe Aviation Ltd. share price target

sumption of aircraft operations and likely market share gains. Cost rationalization and healthy cash positions will help to tide over the crisis situation. Replacement of old aircraft with 15% more fuel efficient fleet to benefit in medium term. Management focus expansion of international footprints and deeper penetration into Tier 2-3 cities, to drive growth. Though aircraft operations have re-started, FY21 is expected be a tough...

18 August 2020 According to the recent IMF estimates (Jun20), Indias GDP growth for 2021 is estimated at ~6.0%, higher than the global economic growth of ~5.4% for 2021. INDIGO has highlighted that medium-to long-term growth prospects for the Indian economy remain robust, and the return of normalcy in airline travel Under-penetration of airline travel in India currently Rise in the working-class population Expansion in the middle-income demographic group in the country In FY20, for INDIGO, ASK growth stood at +19% YoY and RPK growth at +18% YoY. initiatives, liquidity enhancement and improvement in the fleet mix. Most of the new aircraft would be financed through an operating lessor model, generating significant liquidity in FY21-FY22. Employee cost was up 47% YoY to INR47b in FY20. The company expects employee cost to be 30% lower v/s pre-COVID-19 levels by the end of FY21 with the undertaken payroll control initiatives.

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.

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...

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...

Introduction of price brands based on duration of flight After nearly 2 months of being grounded, Govt has finally announced resumption of domestic air travel from May 25, 2020, in a phased manner. Initially airlines shall operate at 1/3rd of the approved 2020 summer schedule and the number of flights will increase in a calibrated manner. However, in an unprecedented move, the Govt has introduced price bands on routes. With Q2 traditionally being the weakest of all quarters, price band is likely to further hamper airlines from achieving breakeven fares/load factors. With...

We re-iterate our Buy on Indigo as (1) The carrier will benefit from improving industry dynamics in the medium term. Air India has once again been put up for divestment by the GoI (2) Crude prices remain benign which will allow for better cost management. Efficiency gains from the Neo fleet will further benefit (3) Valuations at current levels (6.7/4.9x FY21/22E EV/EBITDAR) are undemanding. Any resolution of the ongoing dispute amongst the two promoters will lead to a re-rating of the stock. IndiGos 3QFY20 results were ahead of expectations - the demand environment improved in Nov-Dec, post a soft October, which led to the earnings beat. The revenues grew ~25% YoY due to an improvement in yields (+10 QoQ) and higher ancillary revenues (+29% YoY). We roll forward and set a Dec-21 TP of Rs 1,750 (@6x EV/EBITDAR). Maintain BUY.

The DGCA had earlier made it clear to preferentially replace unmodified engine aircraft with the new deliveries INDIGO takes over the coming months rather than deploying on a new/fresh schedule. This will allow the company to make net additions in ASK growth and facilitate flying of new pilots, whose salaries were an overhang and not associated to ASKs. INDIGO is expecting a lag in deliveries of new aircraft owing to various issues faced by Airbus with the family cabin layout of A321neo and a delay in engine deliveries from engine manufacturers (PW and CFM International). We have built in ASK growth of 6%/12% (unchanged) for FY21/22 as INDIGO targets to replace most of the older aircraft by end-FY22 with new deliveries. We expect INDIGO to continue enjoying the streak of highest domestic market share (~48% for 8MFY20) with its ASK growth plan back on track and concerns about delivery delay from Airbus subsiding in CY20.

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.