Prabhudas Lilladher recommended accumulate rating on InterGlobe Aviation with a target price of Rs 965 in its research report dated July 29, 2020.
Prabhudas Lilladher's research report on InterGlobe Aviation
We cut IndiGo’s FY22/FY23 EBITDAR by 7.4% and 9.5% respectively as scaling up of operations remains sluggish given 1) localized lockdowns 2) low consumer confidence due to rising incidence of Covid-19 cases With the demand environment likely to remain challenging in the near to medium term, IndiGo is focused on optimizing costs and enhance liquidity by 1) Exploring new networks and revenue model (Charter, Cargo etc) 2) Reducing unit costs by cutting down all possible discretionary expenses 3) efficient utilization of fleet 4) 30% reduction in employee bill through mix of salary cuts, leave without pay and layoffs and 5) Monetizing owned aircrafts through SLB. Through these initiatives, the management aims to generate liquidity to the tune of Rs50-60bn over the year. IndiGo’s plan of returning 123 less efficient A320ceos over the next 2 years while continuing to induct fuel-efficient A320neo family will further help reduce unit costs. We expect FY21 capacity to decline by 57% YoY while FY22/FY23 capacity is likely to be 86%/95% of FY20 capacity.
Outlook
Although the near term looks hazy, IndiGo continues to remain better placed than its peers and is likely to emerge stronger from the current crisis given 1) strong balance sheet with Rs184bn cash & equivalents (Rs75bn in free cash) 2) industry leading cost structure and 3) strong management team. We value the stock at 7.5x Sept-22 adj. EV/EBITDAR. Maintain Accumulate with a TP of Rs965/-.
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