Lower ATF prices, robust revenue drives Indigo’s Q3: Should you buy the airline’s stock?

In Q3FY23, Indigo’s EBITDA came in at ₹3,399 crore along with a margin of 22.8% versus ₹1,995.5 crore with a margin of 21.5% in Q3FY22. Passenger numbers increased by 25.8% to 22.3 million, while yield jumped by 25.3%. Further, fuel prices increased by 52.4% leading to an increase in fuel CASK by 41.2%. Also, CASK ex-fuel increased by 6% to ₹2.76 due to an increase in foreign exchange losses.

CEO Pieter Elbers said, “Third quarter performance was strong both operationally and financially in the backdrop of robust demand for air travel. The wide range of initiatives that were set in motion across the organization has started to yield results.”

Indigo has a total cash balance of ₹21,924.7 crore comprising ₹10,612.5 crore of free cash and ₹11,312.1 crore of restricted cash as of December 31, 2022.

Should you buy Indigo shares post-Q3?

On Indigo’s Q3 earnings, Mitul Shah, Head of Research at Reliance Securities said, ” IndiGO reported a strong 3QFY23 performance with EBITDAR margin coming in at 21.3%, vs. our estimate of 19.4% due to lower ATF prices and strong growth on the revenue front.”

Shah added, ” INDIGO has reported a strong 3QFY23 performance due to lower ATF prices. We expect a strong revival in the air passenger traffic over the next 2 years and a factor 33% CAGR in ASK over FY22-FY24E (vs. 12% CAGR over FY18-21), and an improvement in EBITDAR margin as crude prices corrected by >30% from peak level.”

Shah added, “We believe that INDIGO’s strong balance sheet position would help in sustaining its market share along with pricing power, going forward, which would drive its overall profitability. Rising Yield and pricing discipline would support turnaround despite higher fuel prices. It is the best play to capitalize in the fastest-growing Indian aviation sector. At present we have BUY rating on INDIGO.”

Meanwhile, Mansi Lall – Research Analyst, Prabhudas Lilladher said, “Domestic passenger traffic has now reached pre-COVID levels after two years of distress for the aviation industry. We believe that IndiGo remains the best placed among its peers with more than 55% market share. Airlines have taken multiple price hikes against the rising fuel costs. Despite this, factor like revenge and corporate travel are supporting the demand. Crude cost softening will aid margins in the quarters ahead.”

On BSE, Indigo’s share price ended at ₹2,098.55 apiece down by 1.28% on Friday.

As of December 31st, 2022, Indigo has a fleet of 302 aircraft including 23 A320 CEOs, 160 A320 NEOs, 78 A321 NEOs, 39 ATRs, and 2 A321 freighter — a net increase of 22 passengers and 1 freighter aircraft during the quarter.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.