Interglobe Aviation rating – Buy: Strengthened balance sheet augurs well

Even when there have been to be a Covid impression in FY22 just like FY21, IndiGo stays properly positioned when it comes to money on stability sheet.

InterGlobe Aviation (IndiGo) will stay one of many largest beneficiaries of the eventual restoration of air visitors from the Covid-induced despair. Confidence in stability sheet has been considerably restored with availability of funds from QIP (Rs 30 bn), SLB and credit score traces (Rs 45 bn) and the already-existing free money of Rs 71 bn totalling to Rs 146 bn. This could assist IndiGo sail by way of one other difficult yr within the occasion of a powerful Covid hit akin to FY21.

The associated fee construction stays aggressive with induction of neos (42%/14% of fleet is A320/321 neos as of FY21 and whole neo share may rise to 90% by FY23-end). The cargo freighter initiative (A321ceos) diversifies the income stream and may contribute to whole revenues in FY23. Improve to Purchase (from Maintain) with a revised TP of Rs 2,000 based mostly on 20x FY23e EPS of Rs 100.

Confidence in stability sheet restored: Money burn fell from Rs 300 mn per day in Q1FY21 to Rs 250 mn in Q2FY21, Rs 150 mn in Q3FY21 and Rs 190 mn in Q4FY21. Nevertheless, there will probably be larger money burn in Q1FY22 because of the Covid second wave. There are indicators of the second wave receding and there may be pick-up in vaccination efforts. Even when there have been to be a Covid impression in FY22 just like FY21, IndiGo stays properly positioned when it comes to money on stability sheet.

We consider a Covid-hit FY22E and a standard FY23E: In comparison with 46 bn ASK in FY21, we consider 72/96 bn ASK in FY22e/FY23e (FY20 ASK was 96 bn) with PLFs of 80%/88% in FY22e/FY23e. We consider RASK/CASK (together with depreciation/curiosity) to maneuver from Rs 3.72/3.74 in FY20 to Rs 4.24/3.89 in FY23e. We count on CASK (ex-fuel) to maneuver from Rs 2.45 in FY20 to Rs 2.67 in FY23e. Ancillary revenues are more likely to attain 18% of whole revenues in FY23e pushed by cargo initiatives, which has lifted our FY23 RASK estimates. Whereas crude (factored in at $60/bbl for FY22e/FY23e) stays a danger, there might be larger RASK contemplating pent-up demand and no main plane addition over subsequent 3 years within the general system.

Improve to BUY with a TP of Rs 2,000 (Rs 1,515 earlier) based mostly on 20x (unchanged) FY23E EPS (core EPS earlier) of Rs 100 (unchanged): We now base multiples on regular earnings and never core revenue (this excludes funding revenue). That is because of the strategic significance of money within the enterprise (much more after Covid) and the truth that SLB good points will largely circulation by way of different revenue within the P&L other than decrease depreciation. Successive Covid waves and improve in crude costs pose danger to earnings.