IndiGo airline will struggle to turn a profit in the coming financial year with oil prices remaining volatile and travel impacted due to the war in the Gulf region, according to multinational brokerage Goldman Sachs.
Analysts slashed target price for InterGlobe Aviation Ltd. to Rs 5,200 from Rs 6,000 earlier, while maintaining a 'buy' rating on the stock due to its market leader position. The new target implies a return potential of 25%.
"In the near term, with oil prices remaining volatile and the near term earnings outlook weakening meaningfully, we bake in almost no profit for FY27E, and note that the stock may also remain volatile," analysts said in a note. They have lowered IndiGo's international capacity for June quarter focused on the Middle East and increased per litre cost of jet fuel which is the top expense of an airline.
Since the outbreak of the Iran war, airspaces in many Gulf countries have been closed frequently. The rise in refined product prices has outpaced crude as supply risks and export restrictions have intensified.
The estimate for operating income (Ebitdar) has been reduced to Rs 13,700 crore and Rs 15,900 crore for FY26 and FY27, from Rs 18,300 crore and Rs 25,800 crore projected earlier, respectively. The earnings per share estimate for FY26 has been reduced by 148% and FY27 by 121%.
Goldman Sachs expects fewer players to be able to continue operations at current levels, and those that cannot will likely cede market share to IndiGo, which benefits from a net cash balance sheet which is one of its most significant strengths vs peers. The budget airline already has a roughly 65% domestic market share.
"While investor debate in the near term will be mainly on earnings sensitivity, we expect the debate to shift to the airlines' ability to control fixed costs and balance sheet strength longer term and that those will be key differentiators during this period," the note said.
IndiGo Share Price Movement
IndiGo share price has fallen 17% in the last 12 months and 18% on a year-to-date basis.
Out of the 26 analysts tracking InterGlobe Aviation, 21 have a 'buy' rating on the stock, three recommend a 'hold' and two suggest a 'sell', according to Bloomberg data. The average of 12-month analyst price targets is Rs 5,558, which implies a potential upside of 34%.
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