29 July 2020
1QFY21 Results Update | Sector: Aviation
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TP: INR1,030 (+13%)
Aviation space remains preposterous…
…however, INDIGO provides ample clarity on the path ahead
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Financials & Valuations (INR b)
EPS Gr. (%)
Div. Yield (%)
FCF Yield (%)
350.1 / 4.7
1911 / 765
INDIGO reported higher yield than est. at INR4.53 (+11.1% YoY) v/s our est. of
INR3.7. Yield was stronger on the higher base of last year (a quarter of the Jet
demise), aided by fare bands imposed by the Ministry of Civil Aviation (MoCA).
However, the company is of the view that fare caps on domestic travel should be
removed as early as possible.
INDIGO had cash burn of INR400m amid the crisis, which reduced to INR300m as
June – most of the reduction coming out of employee costs. The company
has undertaken cost-reduction initiatives for leasing, payroll, and other costs.
Considering the above-mentioned efforts are realized and cash burn per quarter
decreases along with increase in capacity utilization (ASK guidance for 2Q/3QFY21
is at 40%/50–70% of previous year’s respective quarters), we have built-in loss of
INR62.7b in FY21, with breakeven expected in 2QFY22.
INDIGO is also undertaking various pre-emptive measures to focus and strengthen
each of the business verticals to come out stronger from the current crisis. It is
targeting additional liquidity of INR50–60b through supplementary rental
adjustments. INDIGO was able to already tap ~35% of the earlier targeted INR30–
40b in 1QFY21.
However, we continue to believe that in the long run, Aviation would witness
continued headwinds in terms of surplus capacity, the lack of confidence among
passengers to resume travel, and demand in business travel.
In the current state of uncertainty in the industry, we remain Neutral on the stock.
Cash burn of INR300m per day to reduce further
Shareholding pattern (%)
Jun-20 Mar-20 Jun-19
FII Includes depository receipts
In 1QFY21, ASK was much below our est. at 2.1b (-91% YoY and QoQ), with
PLF of 61.9%.
Domestic flights were permitted operations starting 25
and the company operated only cargo flights till then during the quarter.
RPK came in at 1.3b (-94% YoY and QoQ);
thus, revenue stood at INR7.7b (-
92% YoY). RASK was lower YoY, but marginally higher QoQ, led by huge
pent-up demand for passenger mobility.
Although, the demand trend has
weakened in the last few days due to an increase in the no. of positive
COVID-19 cases in the country.
EBITDAR came in at a loss of INR15.4b (v/s est. loss of INR7.8b). Reported
PAT stood at a loss of INR28.4b (v/s est. loss of INR16.0b; gains of INR12.0b
in 1QFY20, loss of INR8.7 in 4QFY20).
INDIGO resumed services to 56 domestic destinations and served 20
international destinations via charter operations. INDIGO started with ~200
flights on average per day, which now stands ~400 flights per day.
The company added 12 aircraft to its fleet (8 A320neos and 4 A321neos)
during the quarter, totaling 274 aircraft (A320ceos remain same at 123).
INDIGO would return older CEO aircrafts as per its earlier schedules, i.e.,
replacing all of them by Dec’22.
Sarfraz Bhimani - Research Analyst
Swarnendu Bhushan- Research Analyst
research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P
Investors are advised to refer through important disclosures made at the last page of the Research Report.