IndiGo share price hits 52-week high; should you buy the stock?
Shares of InterGlobe Aviation (IndiGo) rose about a per cent to hit their fresh 52-week high of ₹2,344.40 in morning trade on BSE on Monday (May 29). The stock opened at ₹2,322.10 against the previous close of ₹2,324.15 and soon rose to its 52-week high level.
The stock is up about 16 per cent in May so far, looking set to extend the winning streak into the third consecutive month, thanks to the near-term tailwinds including strong March quarter numbers and the suspension of operations this month of peer Go First. Go First on Friday (May 27) announced that all their flights remain suspended till May 30.
The strong March quarter earnings of InterGlobe Aviation, which operates India’s largest airline IndiGo, is a significant positive for the stock.
IndiGo on May 18 reported a record profit of ₹919.2 crore for the March quarter on the back of robust demand for air travel during the period.
The total income for the airline during the quarter rose by 78 per cent year-on-year to ₹14,600 crore. The management said that the forward bookings remain robust and the airline will expand further in Central and South Asia, along with the Middle East. The airline is also in the process to hire 5,000 employees and aims to double its size by 2030.
Read more: IndiGo reports record profit in March quarter on robust demand
Brokerages positive
Top brokerage firms are positive about the stock. Brokerage firm ICICI Securities has a buy call on the stock with a target price of ₹3,000 underscoring favourable supply-demand and a strong balance sheet of the firm.
The brokerage firm highlighted that IndiGo’s free cash (excluding restricted cash) stands at ₹12,200 crore versus ₹10,600 crore as of December 2022 and a low of ₹7,760 crore as of March 2022. Including restricted cash, total cash stands at ₹23,400 crore currently. The company has debt (excluding lease liability) of ₹3,300 crore as of March 2023, implying net free cash of ₹20,100 crore including restricted cash and ₹8,800 crore excluding restricted cash.
“We maintain a tight-supply outlook on Indian aviation in the domestic segment in the near to medium term on the back of (1) replacement cycle by big players like IndiGo and Tata group, (2) weaker balance sheet for smaller airlines post covid, and (3) internationalisation of Indian airlines. This results in a good yield outlook and, in turn, profitability,” said ICICI Securities.
“Spreads may further benefit from an increase in international mix apart from any movement in crude prices. Management’s guidance on volumes in FY24 remains firm (more than 15 per cent growth in available seat kilometres, or ASK), which is reassuring in the context of the global engine supply crisis,” the brokerage firm added.
Brokerage firm Prabhudas Lilladher also has a buy call on the stock with a target price of ₹2,565. The brokerage firm has raised its FY24E and FY25E EBITDAR estimates by 7 per cent and 8 per cent, respectively, amid sustenance in yields, given recent competitive development and stable fuel costs.
“We believe IndiGo is well placed to strongly benefit from (1) demand recovery along with the capacity deployment (aiming for a fleet size of 350 in FY24E), (2) network expansion in domestic as well as international markets (30 new destinations already added in Q4FY23), (3) superior balance sheet ( ₹12,200 crore free cash), and (4) possible market share/yield gains that could accrue from the grounding of one of the competitors,” said Prabhudas Lilladher.
The brokerage firm expects a revenue CAGR of 12 per cent over the next two years backed by fleet addition and sustenance in yields with EBITDAR margin of 25.5 per cent and 28.5 per cent in FY24E and FY25E respectively.
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Brokerage firm Emkay Global Financial Services also has a buy call on the stock with a target price of ₹2,700 while it also raised its FY24 and FY25E PAT estimates by 40 per cent and 16 per cent respectively, factoring in better spreads and vols.
Read more: IndiGo flies high as rivals gather
Disclaimer: The views and recommendations given in this article are those of the brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Updated: 29 May 2023, 12:00 PM IST
