IndiGo shares up 19% this week; here’s why the stock is surging while airlines have their wings clipped

Although the aviation industry has been one of the worst hit by the coronavirus, IndiGo still remains a preferred pick for a number of market analysts.

India’s largest domestic carrier IndiGo’s share price jumped over 8% on Thursday, taking it 19% higher so far this week. Although the aviation industry has been one of the worst hit by the coronavirus, IndiGo still remains a preferred pick for a number of market analysts. Passenger traffic has now inched higher with average daily flyers reaching 80,000 per day in the previous week. IndiGo’s recent decision to raise funds has helped instill confidence in investors pushing the stock higher to trade at Rs 1,120 per share. IndiGo’s stock price has gained 31% since March, but still remains way below its February highs.

In-line with a number of firms, IndiGo too has announced that it will raise Rs 4,000 crore through issue of equity shares through a qualified institutional placement (QIP). Fundraising seems important for IndiGo after the airline reported a 92% fall in revenue in the first quarter of this year. The largest private carrier reported a net loss of Rs 2,844 crore crore in the April-June quarter with revenue shrinking to just Rs 1,143 crore. Earlier last month IndiGo said that the company was operating 400 flights daily. Further, IndiGo has seen buying interest from Jwalamukhi Investment Holdings, a private investment arm of Westbridge Capital. Jwalamukhi Investment bought 54 lakh shares of the aviation giant from Kotak Mahindra International Ltd for Rs 1,028 per share. 

“IndiGo is best placed among Indian carriers to withstand the current disruption and also capitalize on growth recovery,” said analysts at Centrum Broking. IndiGo has a domestic market share of over 52% which makes it a favoured pick among the listed private airline carriers. IndiGo has also been vigilant in taking on cost cutting measures so that the company is able to fly whenever the skies open back to their original strength. Aviation analysts at Prabhudas Lilladher has last month noted that IndiGo’s strong balance sheet with Rs  18,400 crore in cash and cash equivalents along with industry leading cost structure and strong management team could help it fare better than peers. IndiGo’s share price has surpassed most of the target prices of brokerage firms after its recent surge.