IndiGo shares crack over 13% after a flop Q2 show; is it a bargain buy?

Shares of InterGlobe Aviation Ltd, the parent company of IndiGo, tumbled more 13 per cent during the trading session on Monday after the company reported a loss in September 2024 quarter. The company has reported a negative bottomline for the first time in two years which led to a knee jerk reaction in stock.

InterGlobe Aviation slipped into the red, reporting a loss of Rs 987 crore in the second quarter ended September 2024. The loss was on the cards, but it is higher than the street's expectations. However, the aviation major's revenue from operations jumped 14 per cent year-on-year ( YoY) to Rs 16,970 crore in the reporting quarter.

Ebitda for the second quarter of the ongoing financial year slipped marginally to Rs 2,434 crore while margins contracted 210 bps to 14.3 per cent. For the reported quarter, the budget carrier's passenger ticket revenues were Rs 14,359 crore, showing an increase of 10 per cent, while ancillary revenues rose 21 per cent YoY to Rs 1,875 crore.

Following the quarterly earnings, shares of IndiGo dropped 13.42 per cent to Rs 3778.50 on Monday, with its total market capitalization falling below Rs 1.5 lakh crore mark. However, the stock had settled at Rs 4,364.65 on Friday, after falling 3 per cent, The stock has corrected nearly 25 per cent from its 52-week high at Rs 5,033.20, hit on September 12, 2024.

Following the quarterly results, brokerages have a mixed on the stock and cuts in target prices and rating is a common observation. However, some analysts believe that the stock is a bargain buy at lower levels but others believe that current headwinds over oil prices and seasonality in the sector, may keep the gains capped.

The sharp miss in PBT was driven by transient issues—groundings and related compensation, as well as unexpected fuel inflation, said Kotak Institutional Equities. Another overhang was the heightened seasonality in the context of the sharp uptick in demand/supply in the prior year, it said.

"Overall demand trends remain healthy, as reflected in double-digit full-year growth guidance. We lower FY27 estimates by 10 per cent and fair value by 4 per cent to Rs 5,200 on roll-forward. We take note of the recent endeavors of expanding infrastructure, improving customer loyalty, growing distribution reach and attempts to grow offerings beyond flying," it added with a 'buy' tag.

IndiGo is striving to improve its international presence through strategic partnerships and loyalty programs. It served 106.7 million customers in FY24, with a net increase of 63 aircraft. The company had eight strategic partners with a 27 per cent international share in terms of ASKs in FY24, said Motilal Oswal Financial Services.

"The management has also taken several preemptive measures to increase its global brand awareness as it expects to capture a bigger share of growth in the international market over the coming years. We reiterate our Neutral rating on the stock with a target price of Rs 4,130," it added.

"Following a 108–133 per cent outperformance to US and European peers since January 22, we are downgrading IndiGo to 'hold' on higher valuations to global peers and valuation premium to global peers above average, slowing domestic demand and overcapacity concerns," said Nuvama Institutional Equities.

Relentless promoter selling while IndiGo shifts to a hybrid model raises risk, it said, cutting FY25E and 26E EBITDAR by 14 per cent and 7 per cent, with a revised target price to Rs 4,415. as EBITDA missed consensus by 46 per cent owing to a surprise net loss.

Overseas brokerage firm Jefferies has maintained its 'buy' rating on the stock but has trimmed target price to Rs 5,100 from Rs 5,225 earlier. "A miss on higher costs related to aircraft grounding dented the performance. AOG (grounding) impact peaked in Q2 and capacity growth to improve for IndiGo," it added with a positive view in the medium term.