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IndiGo flies high! Hits new 52-week high after brokerages give a thumbs up to future outlook

UBS maintains its Buy rating on IndiGo shares and has raised its 12-month target price to Rs 4,000 per share from the previous Rs 3,900, indicating a potential upside of more than 21% from Friday’s closing price.

IndiGo’s stock price surged by more than 1% on Thursday, reaching a 52-week high, driven by a target price upgrade from foreign brokerage firm UBS. Additionally, domestic brokerage firm Prabhudas Lilladher also maintained a buy rating on IndiGo. The shares of IndiGo rallied by 9.19% in the last 5 days, reaching a new peak of Rs 3,573.80 per share on the NSE.

UBS on Interglobe Aviation

UBS reiterated its optimistic outlook on IndiGo, citing the robust growth prospects of the Indian aviation sector, increasing market share in international travel, efficient cost structure, and operational excellence.

Maintaining a Buy rating on IndiGo shares, UBS revised its 12-month target price to Rs 4,000 per share from 3,900 previously, indicating a potential upside of more than 21% from Friday’s closing price. The brokerage firm continues to value IndiGo at 11x FY26E EV/EBITDA.

In a report, UBS stated, “Despite factoring in higher crude prices and pilot salaries, our estimates are flat to higher, driven by better Available Seat Kilometres (ASK) growth and yields. Also, we continue to see upside risks to our yields in the near term and capacity/ demand growth and profitability over the medium term.”

InterGlobe Aviation, the parent company of IndiGo Airlines, holds a dominant position in India’s aviation sector with a domestic capacity share of 55% in FY23.

The company maintains a bullish stance on the long-term growth prospects of the Indian air travel industry, forecasting a robust 15% CAGR for Indian air travel, both domestic and international, over FY24-30. Emphasizing on international expansion, both the company and Indian regulators foresee India emerging as a significant global hub for international travel connections.

UBS anticipates positive near-term trends and expects consensus estimate upgrades, buoyed by strong demand signals from the company. It projects low double-digit ASK growth in FY25E, surpassing its previous estimate of 6% growth, despite supply-chain challenges.

“ASK growth of low double-digit in FY25 with near-term YoY yield growth is positive in our view and should result in strong near-term earnings. Also, AOG number should remain stable at the current level (we were expecting more aircrafts to be grounded soon), provides much better visibility/ stability to capacity/ earnings,” UBS stated.

The proposed pilot fatigue norms are expected to have a cost impact, which UBS believes will be passed on to customers. The company is currently engaged in discussions with regulators regarding the implementation of these norms.

Prabhudas Lilladher on InterGlobe Aviation

During the InterGlobe Aviation (IndiGo) analyst meet, management unveiled strategic plans aimed at enhancing operational capacity and network expansion. Key highlights included intentions to add more than one aircraft per week, boost capacity by early double digits, launch 10 new destinations, and onboard 5,500-6,000 employees in FY25E.

Despite challenges related to engine issues at P&W, the company’s growth guidance of early double digits suggests a resilient approach to mitigating supply chain constraints. Positive commentary on yields, anticipating growth in 4QFY24E as opposed to earlier guidance, coupled with a heightened focus on international markets, underscored the company’s strategic vision.

Analysts have consequently adjusted EBITDAR assumptions upwards by approximately 4% over the next two years, attributing the revision to revised ASKM forecasts aligning with growth projections.

Projections indicate a revenue compound annual growth rate (CAGR) of 13% over FY24E-FY26E, with EBITDAR margins estimated at 23.9%/23.2%/21.9% in FY24E/FY25E/FY26E, respectively. In light of these developments, the recommendation to ‘ACCUMULATE’ IndiGo shares has been retained, with a revised target price (TP) of Rs3,961, up from Rs3,312 previously, reflecting an adjusted EV/EBITDA multiple of 8.5x, compared to the earlier 7.5x.

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