Why Interglobe Aviation Ltd Share Price is Rising

In recent months, the good run of Indian market has awoken investors to pour money into the secondary markets.

Primary markets have remained lull, with the small and medium enterprises (SMEs) garnering in most of the funds.

As we all know, there are currently a number of factors that are contributing to the rise. Nevertheless, most pundits still forecast that the Indian markets could rise some more.

This may appear as too good to be true but chances are, it's very much possible. And during times like these, it becomes important to keep track of the outperforming stocks, or as most investors like to call them - momentum stocks.

We've recently covered many editorials highlight such stocks. You could take a look at these below:

• 5 Midcap Stocks Near 52-Week Highs That Still Look Undervalued
• 5 Smallcap Stocks Near 52-Week Highs That Still Look Undervalued
• 2 Small-cap Stocks Near 52-Week Highs on Strong Demand for Railways Protection Systems
• 5 Stocks Near 52-Week Highs That Still Look Undervalued

Today we will discuss another outperforming stock that has caught the headlines lately.

Interglobe Aviation or the company that is popularly known as IndiGo.

In the past one year, shares of the company have rallied more than 50% with most of the gains coming in the recent three months.

Indian airline companies are known for their bad reputation as managing an airline business is not so easy.

So, what has suddenly changed for IndiGo and what do the growth prospects look like?

Let's first take a look at why the airline company's stock is on the rise.

Why Indigo Share Price is Rising

#1 Airbus-IndiGo Deal

Last week, the world's largest plane maker Airbus secured the biggest aircraft order in history from IndiGo. It sealed a multibillion-dollar deal to sell 500 narrow-body planes to IndiGo. The total value of this deal is expected to be around US$ 50 billion (bn).

The deal for Airbus's A320 family of jets is the largest by number of aircraft and surpasses rival Air India's order for 470 Airbus and Boeing aircraft placed in February this year.

How does this affect IndiGo? Well, this order is bigger than IndiGo's current fleet of 300 aircraft.

This just shows how big IndiGo's ambitions are. IndiGo is already the world's biggest customer of A320 neo jets. The agreement takes the total number of Airbus aircraft on order by the carrier to 1,330.

Sometimes, the longevity of the order tells you how long it will go on to benefit the company. This order for 500 jets will be delivered between 2030 and 2035.

IndiGo, the market leader already, is set to capture further market share as the record deal will boost its leadership in India, the third largest aviation market.

It will also fuel IndiGo's expansion in international destinations. IndiGo has already informed that it will start direct flights to six new destinations in Africa and Central Asia, including Nairobi, Tbilisi, and Tashkent, this year, marking a massive international expansion.

The airline will now be connecting a total of 32 international destinations, compared to 26 at present.

The airline is also set to add 174 new weekly flights between June and September 2023, including new destinations, routes, and frequencies. IndiGo is also strengthening its European connectivity through codeshare connections with Turkish Airlines. Currently, it offers connectivity to 33 destinations in Europe via Istanbul.

#2 Go First's Loss = IndiGo's Gain

According to the official data reported earlier this month, IndiGo has gained the maximum market share after Go First stopped flying from May 2023.

In May 2023, IndiGo's market share rose by almost 4% to 61% as the Wadia Group airline Go First lost market share. This is also the first time IndiGo's market share crossed above the 60% mark.

Tata group airlines Air India, Vistara and AirAsia also gained a little market share while SpiceJet, that's already bogged down with its own problems, didn't see much change to its market share.

Ever since Go First's collapse, competition has eased in the low-cost segment which gives IndiGo more control over air fares.

That's because the three Tata airlines and IndiGo have so much difference in their market dominance. The Tata airlines Air India and Vistara accounted for around 8.9% and 8.7% of the market share as of May 2023.

As it's really difficult to bounce back from an airline collapse (Jet Airways is a classic example), IndiGo may continue to gain market share in the near term.

#3 Firm turns profitable

For the March 2023 quarter, IndiGo reported a net profit as against a loss in the corresponding quarter in the year ago period.

Last month, the company posted a consolidated net profit of Rs 9.2 bn as against a loss of Rs 16.8 bn.

Over the past couple of quarters, IndiGo has implemented several cost rationalisation measures. It has secured incremental credit lines from banks and shored up significant liquidity.

#4 Rebound in air travel plus softening crude prices add ton growth

Since the pandemic, air travel has rebounded sharply. People are willing to go out on more vacations and India in particular is seeing a rapid increase in consumer spending and fondness for taking flights.

For instance, domestic passenger traffic has surged with April 2023 witnessing 15% higher traffic of 4.3 lakh passengers per day, than the FY23 average of 3.73 lakh. The number further increased in May 2023 according to official data from DCGA.

In the December 2022 quarter, IndiGo had reported a massive spurt in bottomline on the back of a pick-up in demand for air travel.

Fuel and employee costs had kept IndiGo shares at bay back then. But now, crude oil prices have started to come down the have resulted in a moderation in Aviation Turbine Fuel (ATF) prices over the past few months.

Around 40% of IndiGo's expenses are related to fuel costs and other operating expenses including lease rentals, aircraft, and engine maintenance payments. So any drop in crude oil prices is a big positive for IndiGo.

Airlines generally pass on the fuel costs to the customer. However, the ability to pass on rising fuel costs could diminish if the recovery led by pent-up demand loses momentum, putting pressure on the already-stressed airline balance sheets.

What next?

With analysts gung-ho on the budget airline, IndiGo shares could continue their good run at least for the next couple of months.

Back in March 2020 during the pandemic, large airlines like Boeing were indeed on the brink of bankruptcy. Many airlines needed some kind of direct or indirect assistance.

No one wanted to touch these stocks. Warren Buffett's dislike for airline stocks was shared by the whole world. But then things began to improve. The industry picked itself up and started to recover. People started to fly again even before covid cases peaked.

But what now?

According to us, the revenge travel theme will continue to keep playing for many more months to come.

In fact, the recovery in the fundamentals of the entire airline industry is driven by revenge travel. There's a desire for people to get back to the life they were living before covid disrupted it. Travel was a part of it and people all over the world are rushing to popular destinations.

Even if the trend dies down, IndiGo will be fairly better prepared compared to the rest. The weaker players in the sector could put a damper on their revenue growth. Indigo, not so much.

Also, there were reports recently stating promoters of IndiGo are looking to pare stake. The company has soothed investor nerves and said it has not received any such information, nor has the company been made aware by the co-founder of their intention to sell their stake.

IndiGo's pricing power and healthy air passenger traffic could keep the company in blue skies for a long time it seems.

A word of caution sounds about right at this point of time. If you're considering investing in airline stocks, make sure you do your due diligence. It's a risky sector.

If you get either the stock or your timing wrong, you could face serious losses. But if you buy the right stock at the right time, you could find yourself with a multibagger stock.

How IndiGo share price has performed recently

In the past one month, IndiGo shares have gained 6%. In the past one year, shares are up 52%.

And on a year to date basis, IndiGo share price has gained 21%.

IndiGo has a 52-week high of Rs 2,509 and a 52-week low of Rs 1,572.

About Indigo

InterGlobe Aviation is the operating company for IndiGo, India's largest passenger airline in terms of domestic market share.

The airline operates on an LCC business model, offering no-frills air-commute to passengers in the domestic as well as international sectors. It commenced operations from August 2006 with a single aircraft.

Promoted by Mr Rahul Bhatia and Mr Rakesh Gangwal, the company was originally incorporated in January 2004 as a private limited company and converted into a public limited company in June 2006 as InterGlobe Aviation.

Subsequently, IndiGo proceeded with its IPO in 2016, wherein its shares were listed on the BSE and the NSE.

To know more, check out the Interglobe Aviation (Indigo) company fact sheet and quarterly results on our website.

You can also compare IndiGo with its peers.

IndiGo vs SpiceJet

Indigo vs Jet Airways

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