February 22, 2020

IndiGo Q3 preview: PBT may rise 48% YoY, commentary on A320neo engines eyed

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For the recently concluded quarter, analysts at Centrum Broking see the profit declining 7.7 per cent to Rs 176.3 crore primarily “due to lower net fleet addition and higher fuel costs”.

Lower net fleet additions, higher fuel costs, and persisting issues with A320 neo engines could mar InterGlobe Aviation’s – parent company of budget carrier IndiGo – December quarter results for the financial year 2019-20 (Q3FY20).

The budget carrier, which is slated to report its Q3FY20 earnings later today, is also scheduled to hold an extraordinary general meeting (EGM) on January 29, likely on exit norms proposed by co-promoter Rakesh Gangwal.

As per a Business Standard report, the resolutions seek to “relax rules on the sale and purchase of shares by its main shareholders, making it easier for the promoters to raise or cut stake in the company”. READ HERE

The move, if cleared by the Board, has the potential to generate more funds for the airline and “open the doors for strategic investment in the company”, analysts say.

At 11:45 am, the stock of the low cost carrier (LCC) was trading 0.41 per cent higher at Rs 1,507 apiece on the BSE in an otherwise weak market. In comparison, the S&P BSE Sensex was down 0.4 per cent at 41,444 level.

During the December quarter of FY19, the airline had posted a profit of Rs 191 crore, but had posted its biggest ever quarterly loss of Rs 1,065.6 crore during the September quarter of Fy20 (Q2FY20). During December, IndiGo maintained its lead position with 47.5 per cent share of the domestic passenger market, data released by the Directorate General of Civil Aviation’s (DGCA) showed.

Here’s what leading brokerages expect from the results:

Centrum Broking

For the recently concluded quarter, analysts at Centrum Broking see the profit declining 7.7 per cent to Rs 176.3 crore primarily “due to lower net fleet addition and higher fuel costs”. The revenue, on the other hand, is seen at Rs 9,617.6 crore, up 21.5 per cent YoY from Rs 7,916.2 crore logged in Q3FY19.

“While we expect gross fleet addition of 65 in FY21E, we have also factored retiral of 30 A320 CEO aircrafts (in-line with company’s plan to retire 129 aircrafts by FY23). Consequently, we have revised our ASKM downwards by 4.5 per cent YoY to Rs 118 billion from Rs 123 billion,” they wrote in an earnings preview note.

Edelweiss Securities

The brokerage, meanwhile, firm remains slightly optimistic on the estimates, and expects the airline to post a profit of Rs 193.7 crore, up 1.5 per cent YoY. It further pegs the Earnings before interest, taxes, depreciation, amortization, and restructuring or rent costs (EBITDAR) at Rs 2,216.1 crore for the quarter under review, up 39 per cent YoY from Rs 1,595.3 crore, logged in Q3FY19. The same was Rs 256.4 crore in Q2FY20.

“Decline in fuel CASK (-19 per cent YoY) will act as a tailwind, offsetting impact of lower yields. We expect EBITDA growth at over 20 per cent YoY while PAT will remain flat due to forex loss,” they wrote in an earnings preview note.

Prabhudas Lilladher

Analysts at the brokerage firm peg the profit before tax for the airline at Rs 282.5 crore, as against a PBT of Rs 191 crore reported in Q3FY19, thereby reporting the number higher by 48 per cent YoY.

They, further, expect IndiGo to report a yield expansion of 3.5 per cent benefitting from increased international operations. Consequently, sales are estimated at Rs 9,880 crore for the quarter under review.

“Despite 12 per cent YoY fall in ATF prices, CASK to remain under pressure due to increase in maintenance cost,” they said.

Motilal Oswal Financial Services

The brokerage firm would watch out for the management’s commentary on new aircraft deliveries from Airbus and progress on DGCA directive on A320neo aircraft engine replacement. The analysts believe the replacement “remains headwind on net capacity additions”.

The DGCA, recently, extended a 31 January deadline for modification of P&W engines installed on IndiGo’s A320neo planes to May-end. Until modifications are made to the faulty P&W engines, the airline has been permitted to fly on the condition that at least one of the two engines on the A320neo aircraft has been modified.

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