IndiGo's Strong Q4 Results Trigger Target Price Hikes, Up to 18% Upside Predicted

IndiGo, the low-cost subsidiary of InterGlobe Aviation, exceeded analysts' estimates in its quarterly earnings report for Q1 2024, resulting in several upward revisions to its target price as analysts maintain their optimistic outlook.

IndiGo's shares ended 1.08% higher at ₹4,403.00 on the NSE in the previous session. Year-to-date, the stock has surged nearly 48%, outperforming the Nifty 50 benchmark, which has gained around 5.6% during the same period. Over the past year, IndiGo's stock has witnessed a remarkable increase of 94%, nearly doubling investors' investments.

The company's net profit surged by an impressive 106% year-over-year, reaching ₹1,894 crore. Strong demand for air travel, coupled with robust capacity expansion, played a pivotal role in driving the profit growth. Reduced jet fuel costs and increased yields further contributed to the company's financial performance. However, the gains were partially tempered by aircraft on the ground (AoG) expenses.

IndiGo's Q4FY24 revenue surged by 26% year-on-year, reaching ₹17,825.30 crore. The airline's EBITDAR saw a significant jump to ₹4,412.3 crore, up from ₹2,966.5 crore in the same quarter last year. This growth translated into a boosted EBITDAR margin of 24.8%, compared to 20.9% in Q4FY23.

IndiGo's substantial aircraft and engine orders have afforded it leverage in negotiations with manufacturers, resulting in advantageous terms. The airline focuses on selected point-to-point routes that demonstrate strong market demand.

Morgan Stanley has upgraded its rating on IndiGo to 'overweight,' increasing its price target to ₹5,142 per share. The brokerage cites IndiGo's strong Q4 performance, with EBITDA exceeding estimates by 10%. However, Morgan Stanley anticipates flat revenue per available seat kilometre (RASK) year-on-year due to rising inflation. Looking ahead, the brokerage highlights IndiGo's ambitious plans for growth, including the launch of loyalty programs, business class services, and long-haul international flights. While these initiatives may lead to short-term cost increases, Morgan Stanley believes they are strategically aligned with evolving customer preferences and will ultimately drive long-term value for the company.

Jefferies has maintained its 'hold' rating on IndiGo while increasing its target price to ₹4,150 per share. This decision is based on IndiGo's strong Q4 performance, fueled by a 7% year-on-year rise in yields that offset cost pressures. The company further surprised investors with its announcement to introduce business class services by the end of 2024. Despite these positive developments and the benefits of a constrained capacity environment, Jefferies believes the stock's impressive performance already reflects these factors.

Analysts at Emkay Global highlighted that Indigo's management has guided for Q1FY25 capacity growth of 10-12% year-on-year each, though the AoG situation remains range-bound in the mid-70s.

"IndiGo has been delivering best-in-class performance, thereby gaining market share. Despite being largely domestic-focused, IndiGo has among the best aircraft utilization levels," said Nuvama as it maintained a 'buy' rating on the stock and raised the target price by 21% to ₹5,192.

IndiGo faces ongoing concerns about the uncertainty and unpredictability of the policy and regulatory environment, according to Nuvama analysts. The airline's profitability is further threatened by an unfavorable tax structure, which will increase operational costs. Moreover, the economic slowdown could negatively impact demand for both corporate and leisure travel, leading to lower load factors and reduced profitability due to the airline's high operating leverage.

The existing airports in major Indian metropolitan centers, such as Mumbai, Chennai, and Kolkata, are currently operating at maximum capacity, potentially creating a bottleneck for future growth. Moreover, intensifying competition from airlines like Air India and escalating oil prices could present negative factors for the carrier's stock performance.