Indigo Soars: India’s first airline hits Rs 1T market value milestone
InterGlobe Aviation Ltd, the parent company of Indigo Airlines, has become the first aviation firm in India to surpass the Rs 1 trillion market capitalization mark. The airline’s shares have experienced significant growth this year, rising by 29 percent and reaching a record high.
On the Bombay Stock Exchange (BSE), the stock reached Rs 2,595, a 2.5 percent increase from the previous closing price, resulting in a market cap of Rs 1.01 trillion. Since March 28, the stock has rallied by nearly 38 percent.
Among the top 10 listed aviation companies worldwide, Indigo currently holds the 10th position in terms of market value. Delta Airlines Inc holds the top spot with a market cap of $29.62 billion, followed by Southwest Airlines Co and Ryanair Holdings PLC. United Airlines Holdings PLC secures the fourth position, with Air China, Singapore Airlines, China Southern Airlines, China Eastern Airlines Co, and Deutsche Lufthansa following suit.
Indigo’s recent surge in stock value can be attributed to several factors. Firstly, investors anticipate an increase in market share after the declaration of Go Air’s insolvency. Additionally, the stock has gained momentum due to the announcement of an unprecedented order for 500 Airbus A320 family aircraft, making it the largest single aircraft purchase order by any airline from Airbus. This surpasses the previous record set by Tata-owned Air India, which ordered 470 aircraft in March.
UBS, a brokerage house, has revised its EBITDA forecast for FY24 and FY25, increasing it by 18 percent and 14 percent, respectively. The target price per share has also been raised from Rs 2,690 to Rs 3,300.
The positive outlook for Indigo stems from a strong underlying demand that has led to higher passenger load factors (PLF) and increased yields. Despite higher ticket prices, the consistently strong PLF indicates a growing consumer appetite for air travel, showcasing the sector’s overall growth potential. Factors such as falling crude prices, lower VAT, and improved engine efficiency have resulted in reduced fuel costs for the airline.
Yields are currently 30-40 percent higher compared to pre-Covid levels, demonstrating a resurgence in demand that matches the levels observed in FY20. UBS highlighted this growth trend in its report, stating that their FY24/25 profit after tax (PAT) forecasts are significantly higher than the consensus. The potential sale of the Gangwal stake is not expected to pose significant risks, as the market is likely to absorb them due to Indigo’s strong prospects.
Rakesh Gangwal, one of the co-founders of Indigo Airlines, resigned from the company’s board in 2022 following a disagreement with fellow founder Rahul Bhatia. As of March, the Gangwal family held a 16.2 percent stake in the airline.
Kotak Institutional Equities recently included Indigo in its recommended large-cap model portfolio, with a weightage of 150 basis points. According to Kotak, the stock has a potential upside of 22 percent based on their 12-month fair value estimate of Rs 3,000. Indigo is currently trading at 13 times the estimated earnings per share (EPS) for fiscal years 2024 and 2025. However, the brokerage firm acknowledges that Indigo’s earnings may be influenced by various external factors, leading to potential volatility.
IndiGo, officially known as InterGlobe Aviation Limited, is an Indian budget airline based in Gurgaon, Haryana, India. It holds the title of being the largest airline in India in terms of both passengers served and fleet size. As of April 2023, IndiGo commands an impressive 57.5% share of the domestic market.
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