IndiGo share price hits 52-week high as UBS remains bullish, raises target price on stock

IndiGo share price gained over 2% to hit a 52-week high on Tuesday after foreign brokerage firm UBS raised the target price on the stock. IndiGo shares rallied 2.13% to a fresh high of ₹3,355.50 apiece on the BSE.

UBS maintained its positive stance on IndiGo considering the strong growth prospects of the Indian aviation industry, share gains in international travel, efficient cost structure and operational excellence.

It maintained a Buy rating on IndiGo shares and raised the 12-month target price to ₹4,000 per share from ₹3,900 earlier, implying an upside of more than 21% from Friday’s closing price. The brokerage firm continues to value Indigo at 11x FY26E EV/EBITDA.

“Despite factoring in higher crude prices and pilot salaries, our estimates are flat to higher, driven by better Available Seat Kilometres (ASK) growth and yields. Also, we continue to see upside risks to our yields in the near term and capacity/ demand growth and profitability over the medium term,” UBS said in a report.

InterGlobe Aviation, the operator of Indigo Airlines, is India’s largest commuter airline, with a domestic capacity share of 55% in FY23.

The company remains bullish on long-term growth for the air travel industry in India and expects Indian air travel, domestic as well as international, to grow at a strong 15% CAGR over FY24-30. Strong focus on international expansion continues and the company as well as Indian regulators believe India can become an important global hub for international-to-international travel.

In an analyst meeting on March 22, IndiGo gave an FY25 guidance of low double-digit ASK/ demand growth YoY with the addition of at least one new aircraft a week and expects to add 10 new destinations, while raising employee count by 5,500- 6,000.

Indigo added 10 new domestic and 7 international destinations during FY24. Its share of international travel rose to 27% of ASK in FY24E from 23% in FY23.

UBS believes the near-term trends remain positive and should lead to consensus estimate upgrades as the company indicated strong demand. It estimates ASK growth of low double digits in FY25E despite supply-chain issues, better than the brokerage estimates of 6% growth.

Moreover, yield commentary was also positive with YoY growth in Q4FY24E/ Q1FY25E versus flattish expectations during the Q3 earnings call. Aircraft on the ground (AOG) is estimated to remain at current levels (of mid-70s) over 1 to 1.5 years, post which it should see a sharp decline.

“ASK growth of low double-digit in FY25 with near-term YoY yield growth is positive in our view and should result in strong near-term earnings. Also, AOG number should remain stable at the current level (we were expecting more aircrafts to be grounded soon), provides much better visibility/ stability to capacity/ earnings,” UBS said.

The new proposed pilot fatigue norms will have a cost impact, which UBS believes will be passed on to customers and the company is currently in dialogue with regulators.

At 9:50 am, IndiGo shares were trading 0.98% higher at ₹3,317.65 apiece on the BSE.

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