Hold InterGlobe Aviation (IndiGo), target Rs 1,421: Edelweiss Securities

Edelweiss Securities has given a hold recommendation on InterGlobe Aviation with a target price of Rs 1,421.

Shares of IndiGo traded at Rs 1,520 around 12:45 pm on 23 July, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Investment rationale by the brokerage-


Clarity on promoter dispute post board meeting
The management indicated that an independent woman director is likely to be inducted; however, this will require an amendment to the Articles of Association, which will need 75 per cent shareholder approval.

Given that the RG Group holds 37 per cent stake in IndiGo, this will only be possible if an agreement is reached between the two promoters.

Robust performance continues
IndiGo’s PAX growth continued to be in excess of 20 per cent with a surge in international growth offsetting a slight slowdown in the domestic market.

PLFs have picked up QoQ to 89 per cent as the company has taken over slots on the busy Mumbai and Delhi routes from Jet.

However, the brokerage estimates sharply lower yields QoQ in Q2FY20—a seasonally weak quarter and with Jet’s vacated capacity being filled by other airlines.

Outlook and valuation
Overhang of the promoter dispute continues to loom with little clarity on a resolution emerging post the results call.

"While IndiGo continues to deliver earnings, we would recommend a cautious approach in the light of recent concerns on governance," said the brokerage.

With limited upside from Jet’s slot redistribution, the potential for earnings upgrade remains limited.

"We maintain ‘hold/SP’ with a target price of Rs 1,421 (7.5 times FY21E EV/EBITDAR)," said the brokerage.