On Monday, Citi revised its price target for InterGlobe Aviation Ltd. (INDIGO:IN) shares, the parent company of India's largest airline IndiGo, to INR5,300 from the previous INR5,600. Despite the adjustment, the firm maintains a Buy rating on the stock.
The reevaluation of the price target comes after IndiGo reported its second-quarter financial results for fiscal year 2025, which exceeded Citi's forecasts. The airline's yields were notably higher than expected, although management expressed caution about the future. A noted improvement was seen in the reduction of Aircraft-On-Ground (AOG) incidents, which can affect flight schedules and costs.
Despite IndiGo's solid market share and stable yields, there has been a shift in demand dynamics, along with increased competition in international markets. Management has indicated that third-quarter unit revenue might experience a year-over-year decline in the low to mid-single digit percentage range, while cost inflation continues to be a challenge.
The guidance for capacity growth in fiscal year 2025 remains unchanged, with expectations of an early double-digit percentage increase year-over-year. However, Citi has adjusted its revenue estimates for IndiGo downwards, factoring in lower passenger load factors (PLFs) and yields. The firm also made more significant cuts to its EBITDA predictions due to heightened cost pressures.
Despite these challenges, Citi's analyst reaffirmed the Buy rating, citing IndiGo's strong position in the domestic aviation market and the potential benefits from new routes, although the timing and impact of these are currently difficult to predict. The reduction in AOG incidents is also expected to bolster earnings and help maintain market share. The valuation of IndiGo by Citi is based on 2.6 times the forecasted FY26 enterprise value to sales ratio.
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