InterGlobe Aviation Ltd. is the best performing (operating) airline stock on the Bloomberg World Airlines Index, benefiting from rising Indian air traffic after the nation eased lockdown curbs and as prospects of a Covid-19 vaccine inch closer to reality.
Shares of the parent of India's largest airline, Indigo, rallied nearly 83% in the last six months, outperforming global peers like Delta Airlines Inc. and United Airlines Holdings Inc. That comes months after global air travel halted, with airline stocks around the world crashing after countries shut their borders to contain the pandemic.
The carrier reported a 29% month-on-month increase in daily passenger traffic to 29.27 lakh passengers in October, according to data from Directorate General of Civil Aviation. While that's still half the count in October last year, the sequential spike in travel demand indicates a recovery in propensity for leisure travel and augurs well for the holiday season in November and December.
That's expected to reduce daily cash burn to less than Rs 20 crore and strengthen business, according to Centrum Broking—a view that other analysts concur with. Additionally, benign fuel costs—as a result of falling crude oil prices—and a weaker dollar are seen aiding the company's profitability.
Yet, analysts see limited scope for an upside in Indigo given the sharp rise in its share price, citing concerns around the long-term sustainability of demand and premium valuations.
“We continue to believe long-term demand and stability in the sector remain a key challenge; thus, we remain cautious on the stock,” Motilal Oswal said in a recent report. “We value the company at 16x (~33% premium to global peers) September 2021 EPS to arrive at a target price of Rs 1,350,” it said. “Maintain ‘Neutral'.”
As many as 15 out of 21 analysts tracking the stock have a ‘Buy' rating with five recommending ‘Hold' and one suggesting ‘Sell'. Interglobe Aviation's 12-month consensus target price of Rs 1,488 indicates a negative 12% return from its current market price of Rs 1,688 as of Nov. 11.
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