IndiGo Q2 preview: Loss to widen YoY on high crude oil prices, say analysts

IndiGo Q2 preview: Revival in air traffic ahead of festive season and easing of Covid-related restrictions are expected to help InterGlobe Aviation, the parent company of low cost airline IndiGo, to narrow net loss sequentially for the September quarter of the current fiscal year (Q2FY22). However, nearly 60 per cent hike in crude oil prices during the quarter may lead to widening of loss on a yearly basis, said analysts.

The budget carrier is set to report its Q2FY22 results on Thursday, October 28.

“In Q2, India's domestic market continued to make a swift recovery from the aftermath of the second Covid wave, where May '21 operations had crashed to 30 per cent of pre-Covid levels. However, Sep '21 saw industry’s capacity utilization at 65 per cent of pre-Covid levels with sustained improvement in pax load factors (up from 73 pax per flight in May ’21 to 113 in Sep ’21),” highlighted analysts at Prabhudas Lilladher in an earnings preview report.

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Given this, we expect losses for the industry to narrow sequentially supported by higher scale of operations, RASK (revenue available per seat kilometre) improvement on the back of improving load factors & yields, and MTM (mark-to-market) forex gain, they said.

Here’s what leading brokerages expect:

Prabhudas Lilladher

We expect IndiGo to report sequential expansion in passenger load factors (PLFs) to 70.5 per cent along with a bounce-back in yields. However, with aviation turbine fuel (ATF) prices up 59.8 per cent YoY during Q2, we expect losses to widen over the previous year despite higher capacity deployment and better loads.

Against this backdrop, IndiGo’s net loss is seen at 1,800.2 crore compared with a net loss of Rs 1,194.8 crore in Q2FY21 and Rs 3,179.3 crore in Q1FY22.

Sales and Ebitdar loss (earnings before interest, tax, depreciation, amortization, and rent) are pegged at Rs 5,001.1 crore and Rs 7.5 crore, respectively

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Centrum Broking

Analysts here expect IndiGo’s net loss to contract QoQ to Rs 1,683.7 crore in Q2FY22, led by gradual recovery in traffic (up 72 per cent QoQ).

"We have factored a 9 per cent QoQ rise in ticket yield to Rs 3.8 which will offset the sharp rise in domestic ATF prices (up 11.6 per cent QoQ). Further, our estimates build in forex MTM gain of Rs 58.9 crore (compared with forex loss of Rs 370 crore in Q1FY22) on capitalized operating leases due to 15 paise appreciation in rupee against US dollar during Q2FY22," they explained.

Operationally, the brokerage expects ASKM (available seat per kilometer) and RPKM (revenue per available seat kilometer) to grow 45 per cent and 77 per cent QoQ, respectively, with a load factor of 71.5 per cent compared with 58.7 per cent in Q1FY22.

"We expect RASK to improve 19 per cent QoQ to Rs 3.25 led by improvement in load factor (up 1,280 bp QoQ). Revenue, meanwhile, is likely to grow sharply by 74 per cent QoQ to Rs 5,237.3 crore and Ebitdar is seen at Rs 1731 crore," the brokerage said.

Revenues for Q2FY21 and Q1FY22 were Rs 2,741 crore and Rs 3,006.9 crore, respectively, while Ebitdar was Rs 280.6 crore in Q2FY21 and Ebitda loss was Rs 1,417.6 crore in Q1FY22.

Elara Capital

We expect QoQ yields for IndiGo to spike 25 per cent due to a hike in minimum airfare cap imposed by the government as also improved passenger load factor (PLF). Q2FY22 PLF should likely be 73-78 per cent versus 59-69 per cent in Q1FY22.

Overall, net sales are projected at Rs 6,071.1 crore; Ebitda at Rs 1,233.3 crore; and net loss at Rs 502.4 crore.