Morgan Stanley maintained 'overweight' on InterGlobe Aviation Ltd. due to its dominant share, strong operational performance, and capacity additions.
The brokerage also increased the stock's target price from Rs 3,126 apiece to Rs 3,321 apiece, implying an upside of about 27%.
The Indian aviation industry is moving from a recovery phase to an expansion phase, and IndiGo is well-placed to benefit from it, according to Morgan Stanley.
There is potential for upside surprises in earnings and re-rating. The free-cash-flow profile also improves sharply in an upcycle. The positive FCF is supported by global demand for new aircraft being higher than the supply, demand holding up well despite high fares, and IndiGo's peers having a low incentive to start price competition due to leveraged balance sheets, also supporting a multi-year positive FCF.
"IndiGo has strong operational performance and low CASK. Thus, it is well placed to benefit from the up-cycle," said the brokerage in a report published on Thursday.
Key downsides for the airline remain a rise in crude prices and regulatory changes pushing profitability down.
The brokerage raised its earnings estimate by 24% for FY24 and expects the earnings to fall in FY25 due to normalised airfares and an expected rise in oil prices.
Shares of the company rose 0.98% to Rs 2,646.70 at 11.20 a.m. as compared to a 0.66% rise in the benchmark NSE Nifty 50.
The relative strength index is at 80.72, implying that the stock is overbought.
Of the 26 analysts tracking the company, 21 maintain a 'buy', three recommend a 'hold', and two suggest a 'sell' according to Bloomberg data. The average 12-month consensus price target implies an upside of 0.5%.
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