Nomura sees IndiGo emerging stronger from fuel shock; initiates Buy with Rs 6,000 target

Nomura has initiated coverage on InterGlobe Aviation, the parent company of IndiGo, with a Buy rating and a target price of Rs 6,000, implying around 20% upside from the stock’s September 30 closing price of Rs 4,984. The brokerage believes IndiGo’s large aircraft order book, low-cost structure and expanding international network could help it emerge stronger even if elevated fuel prices persist.

Nomura’s core argument is that the current fuel shock may hurt near-term profitability, but could also widen IndiGo’s competitive advantage over airlines operating with higher cost bases. The brokerage expects revenue and EBITDA to grow at CAGRs of 16% and 38%, respectively, between FY26 and FY29, assuming partial normalisation of the war situation in FY28.

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Large order book strengthens IndiGo’s moat

IndiGo has a fleet of 441 aircraft and a pending delivery pipeline of around 900 aircraft, with deliveries extending into the middle of the next decade. The order book includes around 800 narrowbody aircraft, 40 XLRs and 60 widebody aircraft.

Nomura believes this gives the airline enough capacity to defend its domestic dominance while expanding internationally. IndiGo’s domestic passenger market share has already risen from around 37% in FY16 to about 64% by FY26-end, while the Air India group accounted for around 27%, leaving the two groups with nearly 90% of the domestic market.

The brokerage also sees the order book as a cost advantage. IndiGo’s CASK, excluding fuel and forex, is around 10-15% lower than domestic peers and among the lowest across global low-cost carriers. A common fleet, high aircraft utilisation, high-density cabins and bulk orders from a single manufacturer have helped keep costs low.

Fuel shock is a near-term pain, but may favour IndiGo

Fuel remains the biggest challenge. Singapore jet fuel prices are up 60-70% from pre-war levels, while Brent is around $100 a barrel versus $70 before the war. In 1QFY27, IndiGo’s fuel costs accounted for around 50% of total costs, pushing CASK, excluding forex and acquisition costs, up 36% year-on-year.

Yet IndiGo has already demonstrated an ability to pass through part of the inflation. Passenger revenue per available seat kilometre rose 19% year-on-year in 1QFY27, against a 36% increase in CASK, implying around 50% cost inflation recovery. Nomura expects 50-70% recovery going forward, with management guiding for 25% PRASK growth in 2QFY27.

Nomura expects EBITDA margin to recover to 20-23% in FY28-29 from 15% in FY27 as fuel costs moderate. Even if fuel remains elevated for longer, the brokerage believes IndiGo could gain further share as higher-cost competitors face greater pressure.

India's aviation runway remains long

Beyond the current fuel cycle, Nomura sees a structural growth opportunity. India’s air travel penetration remains low at around 0.2 trips per capita, compared with around 0.5 in China and 2.5 in the US. The number of upper-income households is also expected to rise from around 49 million in FY25 to 66 million by FY30, supporting higher spending on travel.

For Nomura, this combination of structural demand, a dominant domestic position and one of the industry's strongest cost structures makes the current turbulence more of a temporary setback than a change in IndiGo's long-term trajectory.

Disclaimer: This article has been written by Sakshi Kumari, who is not a SEBI-registered Research Analyst or an Investment Adviser. Sakshi Kumari and her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here