IndiGo faces rough flight as rising fuel costs, price war hurt

ET Intelligence Group: Stiff competition among local airlines continues to be a cause of grave concern for India’s largest carrier by market share InterGlobe Aviation, which runs IndiGo. Rising fuel prices and a strengthening dollar have also hurt the financial performance at the airline that makes its rental payments in the US currency.

A combined impact of these factors caused a 73 per cent fall in IndiGo’s net profit despite about a 20 per cent growth in revenues in the March quarter in which the Indian currency slid 2 per cent against the dollar.

In a post-earnings call with analysts, the management seemed to indicate that the broader operating environment for the industry is unlikely to change drastically. IndiGo will be adding 25 per cent capacity to its existing fleet of 159 aircraft in the current fiscal.


But that might do little to offer a meaningful boost to its earnings.

Given the headwinds facing the industry, it seems that there is limited upside for IndiGo’s stock.

The IndiGo scrip is trading at an enterprise value (EV) of 11.4 times Bloomberg estimated EBIDTA for FY19, 14 per cent lower than its average multiples. However, after the results, analysts are likely to revise the earnings estimates downward for the current fiscal.

In the March 2018 quarter, higher jet-fuel prices led to a 33 per cent increase in IndiGo’s fuel expenses over the same quarter last year.

The company’s yield revenue per passenger per kilometre fell by as much as 5.6 per cent to Rs 3.3, thus resulting in lower earnings before interest tax depreciation amortisation and rentals (EBIDTAR).

It fell by 21.9 per cent to about Rs 1,132 crore. Consequently, its net profit also fell sharply by 73.3 per cent to Rs 117.6 crore in the March quarter.