11 April 2016
Update | Sector: Aviation
TP: INR1,404 (+42%)
India passenger growth strong; Indigo well placed
Fleet addition back on track; superior profitability to sustain
Equity Shares (m)
21-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INR m)
Free float (%)
Indian air passenger growth remains strong, with YTDFY16 domestic passenger/RPK
growth at 24%/22% (33%/29% for Indigo). Given its firm fleet addition plans, we
believe INDIGO will benefit the most.
Post initial delays, A320neo deliveries are on track and we estimate INDIGO’s fleet at
131/153 by the end of FY17/FY18 versus 107 in March 2016.
We expect INDIGO’s ASK market share at >40% and load factors to remain above
The stock trades at FY18 P/E of 11.9x and has an implied dividend yield of 3-4%.
Financials Snapshot (INR b)
2016E 2017E 2018E
161.8 205.4 256.2
EPS Gr. (%)
Shareholding pattern (%)
A320neo deliveries start; fleet addition on track
INDIGO received three A320neo aircraft in March 2016 and expects its fleet to
increase from 107 to 131 by end-FY17.
Based on firm fleet announcements (164 new planes by FY18 to take India
fleet size to ~550), INDIGO’s fleet expansion is the highest (36% share) in India.
We expect A320neo share in its fleet at ~30% by end-FY18 (fuel efficiency will
give an edge in ticket pricing) and INDIGO’s market share at >40% in
Industry-leading passenger/RPK growth continues
India passenger growth remains strong, with ~23% passenger/RPK growth, and
INDIGO has demonstrated impressive fundamentals, with 40% RPK share and
33%/29% passenger/RPK growth.
While the quarterly seasonality will continue (3Q is the strongest and 2Q is the
weakest), we expect INDIGO’s fleet addition to aptly support >20% passenger
growth over the near-medium term.
Expect superior profitability to continue; at par with global best
INDIGO’s unique fleet strategy and focus on cost control keeps ownership cost
lower, while on-time performance ensures higher load factors, in our view.
While any sharp revival in oil prices will put pressure on profitability, we
expect INDIGO’s profitability to be not only superior to domestic listed peers
but also at par with global LCCs.
Valuation and view
The benefit from marginally higher fleet assumption (131/153 v/s 130/153 in
F17/FY18) is negated by increase in ATF excise duty from 8% to 14% leading to
1-4% EPS reduction for FY16-18E.
Commensurate with marginal revision in our FY18E EPS due to external factors,
we revise our fair value at INR1,404/share (17x FY18E earnings).
On FY18E, the stock trades at 11.9x EPS and adj. EV/EBITDAR of 7.3x with an
implied dividend yield of 3-4%. Maintain
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
(HarshadBorawake@MotilalOswal.com); +91 22 3982 5432
(Rajat.Agarwal@MotilalOswal.com); +91 22 3982 5558
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