Indigo shocks after horror Q2FY19 result, makes massive move; Should you buy?
Indigo shocked everyone by registering one of the worst days in its history and yet today it has surprised all equally!
Indigo unveiled its Q2 result yesterday and shocked everyone with its whopping losses. Yet today, its shares have done a U-turn! Investors' faith seemed to be unshaken with the fact that Interglobe Aviation (Indigo) has witnessed a very weak Q2FY19 result, something that the airline blamed on weak rupee and higher fuel costs. In fact, the share price of Indigo surged over 5% by touching an intraday high of Rs 859.20 per piece on Sensex. However, at around 14:20 hours, its share price was trading at Rs 846.80 per piece above by Rs 29.70 or 3.63%. The aviation sector is currently flying in extremely negative situation as jet fuel rates have soared to extreme heights and rupee continues to depreciate stubbornly. This has impacted many rivals of Indigo.
In its Q2FY19, Indigo reported a net loss of Rs 652.1 crore for the quarter ended September 2018. The Company’s co-founder and interim CEO, Rahul Bhatia said,
“Aviation in India is facing significant pressures from high fuel costs, rupee depreciation and intense competition, all of which have impacted our profitability this quarter."
Indigo's RASK fell 10% YoY due to competition pressure that resulted in lower realization during 15 days advance ticket sales period. The company's PLF was flat YoY at 84.1%, indicating aggressive pricing strategy deployed to boost utilization of rising capacity.
Interestingly, Indigo yet increased its FY19 capacity addition guidance to 30% from 25% indicating yield pressure would remain for the company during H2FY19.
Elara Capital has lowered its FY19E to Rs 9.2 from Rs 71.8 and FY20E EPS to Rs 31 from Rs 94.7 on weaker USD-INR rate at 75 from 68, and higher crude at UD85/bbl from USD75/bbl.
Analysts at Elara said, "We introduce FY21E EPS at Rs 72.3, a 128% YoY growth on fuel efficiency benefit from A320Neo fleets."
Interestingly despite headwinds surrounding Indigo, Elara Capital still has given a buy rating on the company's share price.
Analysts at Elara said, "We reiterate Buy rating on margins recovery from FY20 due to anticipated slowdown in capacity addition by competitors, given their higher cost base versus INDIGO. We roll-over our TP to FY21E."
They added, "We lower our TP to INR1083 from INR1388 on lower margins after incorporating weaker INR, higher crude prices and lower FY21E EV/EBITDAR multiple to 8.0x (from 8.7x)."
Considering that Indigo is trading near Rs 850-mark, one can take this opportunity to invest in Indigo, as it target price is still money making in come months ahead.
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