Madhukar Ladha, analyst, HDFC Securities
We are not positive in the short-term owing to high crude prices and are concerned about IndiGo’s yields which are down 5.5% even as SpiceJet managed a growth of 4% (y-o-y). Revenue was also adversely impacted by the yield. This has come in an environment where high crude prices are hurting profitability. The current low yields are unsustainable and we expect margins to remain under pressure until competitive intensity eases or crude prices fall. As a result, we have slashed our earnings estimates for FY19 and FY20 by 44% and 33%, respectively, to Rs.51.3 and Rs.77.6. The abrupt departure of Aditya Ghosh has not helped matters either. Though the new additions to the team are encouraging, we are keenly watching as to what changes the new management can bring about. While we believe IndiGo is the lowest cost operator in an underpenetrated and structurally growing aviation sector, current market dynamics need to improve for us to turn bullish on the stock.
Jal Irani, analyst, Edelweiss Securities
While the stress on yields continued in April, we are seeing signs of a recovery. The airline has shown a robust 25% (YoY) surge in revenue passenger kilometre and a healthy passenger load factor of 89%, despite the engine disruption controversy. With the issue now resolved, IndiGo is expected to see 25% capacity addition in the current fiscal, augmenting its dominant position. We also expect yields to recover as low pricing cannot be sustained in a high fuel cost environment. In fact, we expect volume to show 20% CAGR over FY18-20. While rising oil price is a concern, ramp-up of 15% fuel-efficient A320neo will moderate the impact. The induction of ATR aircrafts will also help increase network coverage and improve connectivity to international markets from regional routes. Given that IndiGo’s low-cost structure and strong balance sheet will help it cushion any short-term stress, we remain bullish on the stock.