IndiGo cleared for takeoff on strong demand winds

Propelled by strong demand and lower costs, the country’s largest airline, InterGlobe Aviation (IndiGo), reported solid operational performance in the 2024-25 (FY25) October-December quarter (Q3).

Photograph: Francis Mascarenhas/Reuters

While demand was driven by the festival season, year-end increase, and higher consumer spending, lower fuel and rental costs helped deliver a beat at the operating profit level.

Riding on record passenger volumes in a seasonally favourable quarter and higher unit revenues, the company recorded revenues of Rs 22,110 crore, reflecting a 13.7 per cent increase compared to the previous year and a 30 per cent rise sequentially.

Passenger growth rose by 13 per cent year-on-year (Y-o-Y) and 12 per cent from the previous quarter, reaching 31 million — its highest ever for a quarter.

The revenue also included compensation from International Aero Engines due to the aircraft-on-ground situation caused by unavailable engines.

On a sequential basis, the primary driver of top-line growth was a 15 per cent increase in ancillary revenue, supported by higher cargo performance.

Load factors rose by 120 basis points to 86.9 per cent for Q3FY25.

According to the company, the demand increase caused industry load factors in domestic markets to remain above 90 per cent for most of November and December.

The company expects this demand trend to continue in the coming quarters.

Although the reported operating profit of Rs 5,160 crore fell short of expectations, the company exceeded estimates when excluding the negative foreign exchange (forex) impact.

The company incurred a forex loss of Rs 1,399 crore.

Operating profit, excluding forex losses, stood at Rs 6,618 crore, well above Street projections.

Commenting on the results, analysts at Emkay Research, led by Sabri Hazarika, emphasised that the airline achieved strong results in Q3FY25, with a standalone operating profit of Rs 6,618 crore.

This was driven by a 3 per cent increase in revenue per available seat kilometre and yields, while fuel costs and rentals were lower.

The international segment now contributes 10 per cent of revenue, with 28 per cent of overall capacity.

The company is focused on increasing its share of the international market, which would act as a hedge against a weakening rupee.

The rupee has depreciated further in January. The company added four new international destinations in Q3FY25 and plans to add a couple more in 2025, bringing the total to 40.

IndiGo also expanded its domestic network, adding two new destinations and a total of 50 routes in Q3FY25.

While the company remains optimistic about its growth potential, the movement of airfares in the short term will be a key trigger.

According to Motilal Oswal Research’s airfare tracker, 30-day domestic forward prices for IndiGo have dropped 18 per cent quarter-on-quarter (Q-o-Q) to Rs 5,576, while 15-day prices are down 2 per cent Q-o-Q to Rs 6,531 in the fourth quarter (Q4) of FY25 to date.

For Q4FY25, capacity in terms of available seat kilometre is expected to rise by 20 per cent Y-o-Y.

While over 60 aircraft are grounded due to Pratt & Whitney engines, management expects this number to decrease to the 40s by 2025-26 (FY26).

Emkay Research has reiterated a ‘buy’ rating on the stock. While FY25/26 earnings per share have been reduced by 25 per cent/11 per cent due to forex losses and higher depreciation/amortisation, these adjustments are largely non-cash, and core earnings and valuation remain unchanged.

The brokerage has a target price of Rs 5,300.

Analysts Aman Chowdhary and Sumant Kumar of Motilal Oswal Research have also revised their earnings estimates downward by 14 per cent/6 per cent for FY25/FY26.

The stock is trading at 17x FY26 earnings and 8x FY26 enterprise value to operating profit before rentals.

They maintain their ‘neutral’ rating on the stock with a target price of Rs 4,535.