Analyst Corner: Retain ‘Reduce’ InterGlobe Aviation with Rs 1,200 TP

Though the vaccination program might increase demand slightly however the Covid-19 unfold is much wider this yr.

Dense clouds within the sky: The Indian aviation trade is going through its most difficult interval — demand has disappeared, restoration stays extremely unsure and macro elements proceed to be unfavourable. Present site visitors is down nearly 83% from the current peak in February 2021 and is at about 13% of pre-pandemic ranges in 2019. April-June is often the busiest quarter when the trade earns 45-50% of full-year revenue, which can be worn out this yr.

The July-September quarter tends to be the weakest, which suggests we’re not prone to see restoration till the October-December quarter on the earliest. Indigo stated it’s now exploring choices to lift Rs 30bn. Indigo reported a money burn charge of Rs 150m per day within the quarter to December, and we estimate its money burn at Rs 70-75bn in FY21e.

Restoration stays unsure: The pattern final yr means that restoration in demand could possibly be delayed by no less than 9-12 months. Though the vaccination program might increase demand slightly however the Covid-19 unfold is much wider this yr.

The restoration final yr was a lot stronger in tier-2 and tier-3 cities because the impression of Covid-19 was much less there however the impression this yr is far more extreme throughout India. We anticipate round 80m home passengers in FY22e, down 44% from pre-Covid-19 ranges. Many of the worldwide borders stay closed, nonetheless European nations are contemplating opening borders to leisure travellers from the US and inside Europe who’ve been vaccinated. Nevertheless, European airways see restoration in demand to/from Asia as no less than a couple of quarters away.

Macro elements unfavourable: (1) The availability/ demand equation is very unfavourable. Whereas the fleet development appears low, the trade is taking supply of large-sized slim physique plane which means the capability development might nonetheless be in low double digits. On the opposite facet, the jet gas worth has risen sharply, up nearly 32% because the begin of the yr, whereas INR has depreciated towards USD by c2% and is buying and selling at 73.8. Nevertheless, one-year ahead INR/ USD is buying and selling at 77.6 which might add vital stress on prices.

Modify forecasts, earnings momentum set to show unfavorable: We forecast Indigo’s web loss at round Rs 41bn in FY22e as we incorporate the most recent demand pattern whereas the consensus is much too bullish because it forecasts web revenue of Rs 780m in FY22. So we imagine that the earnings momentum is ready to fall sharply and that could possibly be unfavorable for the inventory.

Retain a Scale back ranking. TP lower to Rs 1,200: Following modifications to our forecasts, our TP strikes right down to Rs 1,200 (from Rs 1,430). Its web value might flip unfavorable quickly. The corporate reported fairness of Rs 18bn on the finish of Sep 2020. It reported a lack of Rs 6bn in Q3 and we forecast its loss at Rs 9bn throughout This fall.