Target: ₹1,500
CMP: ₹4,345.90
Key investor pushbacks focus on three key aspects for Interglobe Aviation (IndiGo): Can IndiGo replicate domestic success globally? Is owning an aircraft better than leasing? and plausible capital allocation opportunities given ₹51,600 crore cash on B/S.
Our views: IndiGo is taking steps to add routes every year; international ASK increased from 23% (FY23) to 32%; (ii) owning aircraft is less expensive vs leasing and is adopted by global carriers; despite high upfront costs, it reduces long-term finance costs. We expect IndiGo to keep a 40:60 owned-leased mix vs its current 20:80. Whilst near-term headwinds persist, leading to about 22/3 per cent cuts in our FY27/28E EPS, we expect catalysts to play out in 2HFY27 (new CEO, winter schedule clarity, crude/FX normalisation).
We maintain a Buy rating given long-term international expansion plans; expect 15/28 per cent revenue/EBITDA CAGR (FY26-29E); 1yr DCF-based TP of ₹5,300 implies 6x 1yr fwd EV/EBITDA and 5x 1-year fwd EV/EBITDAR. Favourable route mix towards Tier2/3 cities and international destinations.
Even though near-term headwinds in the sector persist owing to geopolitical issues, rising crude prices, INR depreciation, etc., we expect meaningful catalysts to play out post 2HFY27. We reckon consensus is yet to factor in the full impact of fuel cost inflation and hence expect risk to consensus FY27E. That said, we build in crude at USD82/bbl and USD/INR 93 for FY27-28E, leading to 22/3 per cent cut in FY27/28E EPS