InterGlobe Aviation 4QFY21 Results Review Report - Recovery priced in - HDFC Securities

Mr. Aditya Makharia, Institutional Research Analyst, HDFC Securities

Indigo's 4QFY21 results were below estimates as the airline reported a loss of INR 11.6bn. The pick-up in aviation traffic is now delayed to 2HFY22 at a time when crude prices are firming up. We believe that the expected recovery in the industry prospects is adequately factored in at current levels (the stock has risen over 80% from its COVID lows). We downgrade the stock to REDUCE and lower our EBITDAR estimates by ~10% over FY22/23E. We set a revised target price of INR 1,580, based on 7X EV/EBITDAR FY23E.

4QFY21 financials: Revenue at INR 62.2bn grew 27% QoQ, which was lower than expected as travel growth was restricted due to state-wise lockdowns. PAX yields came in at INR 3.7 (-1% QoQ). However, ancillary revenue grew to 20% of sales vs 14/17% YoY/QoQ due to increased cargo loads. Fuel cost was significantly higher at 31% of sales vs 23% QoQ (the average fuel cost is up 26% QoQ); forex loss came in at INR 1.17bn. Consequently, IndiGo reported an EBITDAR of INR 6.15bn (vs. INR 9.03bn QoQ) and a net loss of INR 11.6bn (vs loss of INR 8.7/6.3 YoY/QoQ).

Fundraise on the cards again: Earlier, the company had called off its decision to raise funds. However, led by the increasing daily cash burn (INR 190mn in 4QFY21 vs INR 150mn QoQ) and to strengthen the balance sheet, the board has decided to raise INR 30bn via a QIP. IndiGo had free cash of INR 71bn at the end of FY21 (total cash at INR 186bn) while its debt has risen to INR 298bn (including lease liability).

Key highlights: (1) Daily cash burn rate remains elevated: The daily cash burn at Indigo was INR 190mn in 4QFY21 vs INR 150mn QoQ. Management expects this to remain elevated in the near term. (2) Fuel prices: As the crude oil price has risen; it has increased costs by 26% QoQ. The supplementary rentals were elevated in 4QFY21 as more planes were at the MRO facilities. This should moderate, going ahead. (3) Travel trends to pick up: IndiGo had reached a load factor of 85% of the pre-COVID level in Feb-21 as pent-up demand was witnessed prior to the second wave. It expects travel to revive as the COVID cases subside. International operations remain weak at 30% of pre-COVID levels. (4) NEOs have improved cost economics: A320/321 NEOs now account for 56% of the fleet. Their unit costs are 10% lower than that of CEOs. As the older CEO planes are phased out, the airline will save on supplementary rentals. (5) Fleet size: The fleet is expected to remain at the current level (of ~285 planes) over FY22, with the airline phasing out more of its CEO planes over the next year even as it takes deliveries of the new aircraft. It has ~100 CEO planes in operations currently.

Shares of InterGlobe Aviation Ltd was last trading in BSE at Rs.1792.7 as compared to the previous close of Rs. 1783.3. The total number of shares traded during the day was 66968 in over 5531 trades.

The stock hit an intraday high of Rs. 1859.6 and intraday low of 1780.55. The net turnover during the day was Rs. 121841924.

Source : Equity Bulls

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