IndiGo posts better than expected Q1 nos; should you buy?

Brokerages expect the stock to return 18-46 percent over a period of one year

Most brokerages retained their bullish stance on InterGlobe Aviation stock as the company reported better than expected earnings in Q1 thanks to the grounding of Jet Airways.


Brokerages expect the stock to return 18-46 percent over a period of one year.

After Jet Airways suspended operations, the government had distributed its slots and international flying rights to other airlines. Jet absence also helped IndiGo's cargo business that grew 35 percent YoY.

The operator of low-cost airline IndiGo reported the highest ever quarterly profit at Rs 1,203 crore in Q1FY20, 43 times Q1FY19 profit.

Revenue from operations grew 44.7 percent year-on-year and its earnings before interest, tax, depreciation, amortization and aircraft and engine rentals (EBITDAR) in Q1 increased by 146 percent.

Here is what brokerages say about IndiGo result:

Brokerage: Credit Suisse | Rating: Outperform | Target: Rs 1,900 | Return: 30 percent

The brokerage retained outperform call for company's very strong lead versus competitors.

Company maintained its guidance of 30 percent capacity growth, targeting to buy some planes by cash.

IndiGo believes it needs cash of Rs 4,500 crore against total net cash of Rs 15,000 crore.

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 2,132 | Return: 46 percent

The brokerage has an overweight call on the stock with a target price at Rs 2,132 per share.

Company's yields surged 13 percent YoY against brokerage's estimate of 6.5 percent growth. Depreciation and interest charges were much lower than the expectation.

Brokerage: Prabhudas Lilladher | Rating: Buy | Target: Rs 1,729 | Return: 18 percent

The brokerage expects IndiGo to continue outperforming industry growth with ASK & Revenue growing at a CAGR of 27 percent and 33 percent over FY19-21.

The brokerage maintained buy call on the stock given strong business fundamentals. Any abnormal increase in crude oil prices and irrational yield environment are key risks to its call.

Brokerage: Motilal Oswal | Rating: Neutral | Target: Rs 1,410 | Return: -3.6 percent

Management guided that the impact of the yield increase due to the grounding of Jet Airways has come to an end.

Also, the recent spate of conflicts between the promoters could continue posing corporate governance challenges. However, IndiGo will induct a woman director on the board, to be in compliance with the SEBI norms.

Brokerage's estimates are highly sensitive to (a) yield, (b) PLF and (c) crude price assumption. However, it remained neutral on the stock and value IndiGo at 14x FY21E EPS of Rs 100.7 to arrive at a target price of Rs 1,410.

Disclaimer: The views and investment tips expressed by brokerages on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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