InterGlobe Aviation Ltd’s shares fell on Wednesday on the National Stock Exchange. In early deals, the stock was down more than 4%.
This came after the firm that runs India’s largest airline, IndiGo, saw June quarter (Q1FY22) losses widen sharply, coming in worse than estimated. Standalone net loss stood at Rs3180 crore, roughly Rs1000 crore higher than Ambit Capital Pvt. Ltd’s estimates. With this, the airline’s net worth has now turned negative. At the end of financial year 2021 (FY21), IndiGo’s net worth stood at Rs71 crore, dropping meaningfully from Rs5860 crore a year ago.
Indeed, the IndiGo stock has remained rather resilient, ignoring all the bad news since the pandemic began even as losses have piled up and networth eroded. For FY21, net loss stood at around Rs5800 crore. Prior to Q1 results, the stock was nearly 14% above its pre-covid highs seen in early 2020. The argument that supports the stock’s performance is that IndiGo’s balance sheet is robust and the firm is better placed to cope with the ongoing pandemic crisis.
“We believe IndiGo continues to remain better placed than its peers and is likely to emerge stronger post Covid given superior balance sheet (Rs5600 crore free cash) which is likely to be further strengthened with Rs3000 crore QIP, industry leading cost structure and strong management team," pointed out a report by Prabhudas Lilladher Pvt. Ltd.
Note that IndiGo’s free cash at the end of March quarter stood at Rs7100 crore. For the June quarter, the average net cash burn increased to Rs33.4 crore per day, up from Rs19 crore per day seen in the March quarter. According to Ambit Capital, weaker-than-expected yields, higher employee costs, and lease rentals were key negative surprises in Q1 results.
IndiGo’s employee costs have increased by around 9% vis-à-vis the March quarter. Further, the aviation industry has to grapple with higher crude oil prices. This factor, too, hurt IndiGo’s profitability. Additionally, the second covid wave severely impacted travel demand and in turn, revenues for the quarter. IndiGo said the best way to illustrate covid impact is through the monthly revenues over April to July. Revenues for the months of April, May and June stood at ₹Rs1540 crore, Rs670 crore and Rs960 crore, respectively. “July is projected to recover back to April levels," said the company’s management in its earnings conference call.
As such, investors would follow recovery in traffic closely hereon. Meanwhile, Prabhudas Lilladher values the stock at 9 times FY23 adjusted EV/Ebitdar and arrives at a target price of Rs1630. EV is enterprise value and Ebitdar is earnings before interest, tax, depreciation, amortization and lease rentals. However, IndiGo’s shares currently trade at around Rs1634, hardly leaving any scope for upsides, hereon.