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IndiGo soars in Q1, but a leaner September quarter is on the horizon

LiveMint logoLiveMint 01-08-2017 Pallavi Pengonda

InterGlobe Aviation Ltd, which runs IndiGo, did very well for the June quarter, surpassing analysts’ estimates. Earnings before interest, tax, depreciation, amortization and aircraft and engine rentals (Ebitdar) increased 27.7% year-on-year to Rs1,951 crore last quarter. IndiGo’s profitability was helped by relatively lower operating costs and robust revenue growth.

Its revenue per available seat kilometre (or Rask) increased 5.5% last quarter whereas cost per available seat kilometre (or CASK) excluding fuel declined 2.5%. Overall, Cask increased 1.3%, which analysts say is commendable. Yields (passenger ticket revenue divided by revenue passenger kilometres) increased 2%. The upshot: IndiGo reported 37% growth in its net profit to Rs811 crore, the highest ever quarterly profit according to the airline.

As we enter into a leaner September quarter, the June quarter Rask growth isn’t really sustainable. That’s because the company wasn’t matching fares in last year’s June quarter and has been competitive since then leading to higher load factors and better Rask. Outlook on yields isn’t overtly bright considering that crude prices are expected to remain stable.

The company now expects its capacity to increase 20% for this financial year compared to earlier guidance of 25%. This may not be a bad move considering industry passenger demand growth has been in a similar range in recent months. Crude prices too aren’t expected to rise substantially.

The IndiGo stock has outperformed so far this financial year rising 23% compared to a 10% increase in the benchmark Sensex. Currently, one share trades at a pricey 25 times earnings anticipated for this financial year. In a conference call, the firm said that it is open to considering a shift in its aircraft acquisition strategy from operating leasing model to an ownership one. According to an analyst, investors holding the stock for dividend may not welcome this news, as there is a possibility that the future dividend payout could get adversely affected. This is because acquiring aircraft may affect future cash flows. The stock will also take cues from developments regarding its international strategy. IndiGo expressed interest in Air India and news flow on that front will be key for the stock.

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