IndiGo Can Return 18% With Sustained Profitability, UBS Says On Upgrade
UBS Research remains constructive on InterGlobe Aviation Ltd.'s medium-term profitability due to a "highly favourable" industry structure. The brokerage maintains a 'buy' rating on the IndiGo parent and raised the target price to Rs 5,400 from Rs 4,000 apiece, implying a potential upside of 18% from the previous close.
It expects IndiGo's market share gains in international travel to continue, aided by A321 XLRs and A350 aircraft in the medium and long term. UBS expects the airline to generate a compound annual growth rate of 13% in Ebitda over financial year 2024–27 with upside risks, according to a note on Monday.
"Long-term macro prospects along with various demand-supply tailwinds indicate continued strength in India's air travel demand," it said.
IndiGo is valued at 11 times the one-year forward EV/Ebitda, reflecting the five-year and 10-year historical mean. This price target implies a fiscal 2026 price-to-earnings ratio of 23 times, positioning IndiGo's valuation as less expensive than other Indian tourism-oriented stocks, according to UBS.
The market dominance and strong pricing power position IndiGo well for sustained profitability despite near-term cost inflation. Medium-term margin tailwinds include falling crude oil prices, a rising proportion of international, tier-2 and tier-3 routes, the shift to more fuel-efficient airplanes and a reduction in aircraft on the ground, it said.
Here's What The Brokerage Says
Maintains a 'buy' rating on the stock and upgraded target price to Rs 5,400 apiece from Rs 4,000 earlier.
The demand for air travel in India continues to grow.
Expects a compound annual growth rate of 11–17% in Indian air travel demand over fiscal 2024–30.
Expects Indigo's market-share gains in international travel to continue.
Remains constructive on Indigo's medium-term profitability, driven by a highly favourable industry structure.
Expects Indigo to generate a CAGR of 13% in Ebitda over fiscal 2024–27.
Short-term impact on profit due to sudden rise in supply, seasonality or sharp fuel-price increase cannot be ruled out.
Any associated dip remains an ideal buying opportunity.
Expects the sharp rise in Air India/Vistara's near-term capacity to impact Indigo's yields in the first quarter of fiscal 2025.
Expects a weaker second quarter due to seasonality.
IndiGo's stock rose as much as 1.26% during the day to Rs 4,281.45 apiece on the NSE. It was trading 0.46% higher at Rs 4,247.70 per share, compared to a 0.33% advance in the benchmark Nifty at 10:31 a.m.
The share price has risen 42.94% on a year-to-date basis and 61.71% in the last 12 months. The total traded volume so far in the day stood at 0.48 times its 30-day average. The relative strength index was at 50.99.
Out of 22 analysts tracking the company, 16 have a 'buy' rating on the stock, four recommend 'hold' and two suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 9%.
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