New overseas destinations, weak oil to boost IndiGo’s earnings

ET Intelligence Group: The stock of InterGlobe Aviation has gained nearly 40 per cent in the past six months. Over half of the gains have come in just three months on the back of rising market share amid grounding of Jet Airways due to lack of funds.

The stock may continue to attract investors considering the possibility of higher yield given the expanding fleet size and lower crude oil prices.

Indigo’s capacity is expected to increase 30 per cent and 22 per cent in the current and next fiscals, respectively, compared with a 28 per cent rise in FY19. In the June 2019 quarter, it added 16 Airbus aircraft. Its fleet size is expected to increase to 278 in FY20 compared with 218 in the previous fiscal.

In addition, the company has announced plans to fly to China and Saudi Arabia as new international destinations. Though revenue per km is usually lower on foreign routes, it is compensated by lower fuel cost per km.


This should ease pressure on yields. The company has targeted 5 per cent yield improvement in FY20 with the help of network optimisation and higher international connectivity.

The yield for the current and the next quarter are expected to be over 50 paise higher than the last year. Every increase of similar magnitude in the yield translates into Rs 1,000 crore of higher quarterly revenue. With the proportion of efficient Neo Airbus increasing, the cost per available kilometre will drop.

The softening of crude oil prices will further support earnings growth. Nearly 40 per cent of the total operating cost is linked to movement in crude oil prices. A $5 drop per barrel in crude prices improves projected EPS by 7-8 per cent.

At Wednesday’s closing stock price of Rs 1,608.8, the company’s enterprsie value (EV) was 9.6 times the one-year forward operating profit before depreciation and amortisation (EBITDA) compared with the one-year average of 10.9.