A reduction in value-added tax on aviation turbine fuel (ATF) by Maharashtra and Delhi could offer a meaningful cost reprieve to Indian airlines, according to HSBC, which said the move affects airports accounting for roughly 37% of the country's domestic air traffic.
The brokerage estimates the tax cuts could lower fuel costs by Rs 1,200 crore to Rs 1,500 crore for InterGlobe Aviation, which operates the IndiGo brand. SpiceJet could save Rs 100 crore to Rs 200 crore, while Air India may see a reduction of Rs 800 crore to Rs 1,000 crore in its fuel bill. Akasa Air could benefit by Rs 200 crore to Rs 300 crore.
Maharashtra has cut VAT on ATF from 18% to 7%, while Delhi has lowered the levy from 25% to 7%. Together, airports in Mumbai, Nagpur and Delhi account for more than a third of India's domestic aviation fuel consumption.
HSBC said the lower tax rates could reduce IndiGo's FY27 fuel bill by roughly 4% to 5%, while SpiceJet's fuel costs could decline by around 3% to 5%. The actual benefit may be even larger if airlines are able to optimise refuelling patterns and take on more fuel at lower-tax airports.
HSBC Maintains Buy on IndiGo
HSBC maintained its ‘Buy' rating on IndiGo with a target price of Rs 5,210, implying a 21% upside from the brokerage's reference price. The firm said investor focus will now shift to the airline's upcoming fourth-quarter results and its analyst day scheduled for June 8, where management is expected to outline its long-term growth strategy.
For SpiceJet, HSBC retained a ‘Reduce' rating with a target price of Rs 5.30.
Despite the tax relief, HSBC cautioned that the sector remains vulnerable to a weaker rupee and higher oil prices. The brokerage estimates that every 5% increase in jet fuel prices could reduce IndiGo's FY27 EBITDA by 11.1%, while a one-rupee depreciation in the rupee against the US dollar would shave off about Rs 450 crore from EBITDA.
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