IndiGo hit by massive losses and downgraded targets – will India’s top airline soar again?

InterGlobe Aviation, the parent of Indigo airline has been downgraded by top brokerage firm Motilal Oswal by 6 per cent. The target price of the stock which was earmarked for Rs 4,366 has been pulled down to Rs 4,130.

The report reflects on the company’s financial strain due to increased operational costs, seasonal downturns, and grounded aircraft issues which have resulted in a Q2 net loss of Rs 990 crore – this has surpassed the initial estimate of Rs 680 crore.

The report attributes to IndiGo’s financial challenges which have cropped up because of fuel prices and engine issues related to Pratt & Whitney engines, which left over 60 aircraft grounded.

Further, JP Morgan too has adjusted its outlook on InterGlobe Aviation by reducing its target to Rs 4,800 from the previous Rs 4,950. The firm has maintained an overweight rating of the stock. The company’s loss of Rs 990 crore was notably larger than the JP Morgan estimate of Rs 220 crore loss. The discrepancy was attributed to unexpectedly high operational costs.

The airline, however, expects to reactivate around 20 grounded planes in FY26 and reduce the number to 40. However, the disruptions in operations have severely impacted the airline’s capacity and profits.

In its Q2FY25 result, IndiGo reported a 26 per cent year-on-year decline in EBIDTA reaching Rs 1,620 crore. The airline has however achieved an increase in revenue passenger kilometres (RPK) to Rs 3,160 crore and a passenger load factor of 82.7 percent, but operational costs have outpaced revenue growth.

The airline’s yield per kilometre has grown slightly to Rs 4.55 but high fuel expenses and costs associated with aircraft on the ground increased losses.

IndiGo however reported a substantial rise in demand ahead of the festive season in October 2024 which may contribute to its Q3 results. The company’s management remains optimistic, reaffirming its long-term goal of doubling international capacity by FY25. The airline is set to increase its capacity share in the international market to 30 per cent by the fiscal end supported by the addition of two international routes in Q2 and three more planned by the year-end.

The company’s ancillary revenues, generated from cargo and freighter business are performing well to offer a buffer against the high costs impacting the core passenger business. Despite the inherent challenges, Motilal Oswal has made a forecast of FY26 revenues of Rs 82,140 crore with an EBITDA of Rs 17,090 crore.

However, Kotak maintains a ‘buy’ rating on InterGlobe Aviation stocks but has cut the target price from Rs 5,700 to Rs 5,400, and finally to Rs 5,200. While the long-term growth outlook remains intact, the report advises caution and maintaining a ‘neutral’ rating for the stock.

While IndiGo grapples with its inherent operational challenges, the market is likely to watch its ability to manage costs and expand international routes to sustain profits. InterGlobe Aviation stock remained volatile on Tuesday hitting a low of Rs 3,980 and then making a recovery to around Rs 4,017 by 12:30 pm.