Aviation stock to buy now for an upside potential of 20%; Do you hold it?

India’s civil aviation industry has become one of the fastest-growing sectors in the country over the past three years. According to the International Air Transport Association (IATA), India is set to surpass China and the United States to become the world’s third-largest air passenger market by 2030. The growing demand in the industry has also led to an increase in the number of airplanes, which is expected to reach 1,100 by 2027.

Price Action

The shares of India’s largest airline, Interglobe Aviation Ltd (Indigo), with a total market capitalization of Rs 1.71 Lakh Crores on Tuesday, closed at Rs 4,428.45 per share which was 2.4 percent down from the previous closing price of Rs 4,536. 

The shares of Indigo generated a return of 39 percent in the past year, 135 percent returns in the past three years, and 207.5 percent returns in the past five years. 

Brokerage Targets

Brokerage Firm Citi has retained its “Buy” rating and increased Indigo’s target price by Rs 100. It raised the target price on the stock from Rs 5,100 to Rs 5,200 per share, which implies an upside potential of 17.4 percent from Tuesday’s closing price.

International Brokerage, Jefferies also hiked Indigo’s target price from Rs 5,100 to Rs 5,260 per share, which is an upside potential of 18.78 percent from Tuesday’s close. 

Also read: How Vijay Kedia’s Major Stocks Performed in the Market Crash?

Brokerage Rationale

Citi has opened a 90-day positive catalyst watch on Indigo as it expects improvement in the overall air traffic demand. It also states that the demand driven by Maha Kumbh has positively contributed to the company’s market share. Citi anticipates improvement in the passenger load factors (PLFs) in Q4FY25, despite a seasonally weak quarter. Citi has noted a few key risks like higher aviation turbine fuel prices and the weaker Indian Rupee against the dollar which could affect the Q4FY25 results. 

Jefferies remains positive on Indigo’s aggressive capacity expansions amid competitors’ struggles, which gives Indigo an edge in yield growth. It highlighted Indigo’s “unique, strong franchise” and expects the company’s lean cost structure and ability to capitalize on increasing demand makes it unique. Jefferies anticipates the company to maintain its profitability despite short-term cost pressures, with fuel prices stabilizing and better operating leverage. 

Financials

The company reported a 13.7 percent YoY growth in Revenue from Operations from Rs 19,452 Crores in Q3FY24 to Rs 22,111 Crores in Q3FY25. Their Net Profits however declined by 18 percent YoY from Rs 2,998 Crores to Rs 2,449 over the same period. 

The company saw a 12 percent increase in available seat kilometres (ASK) and a 13.5 percent rise in revenue passenger kilometres (RPK). 

Recent Updates 

Indigo has announced the commencement of operations on the Delhi-Bangkok route, with Boeing B787-9 wide-body aircraft from Norse Atlantic which the company has leased temporarily. This move is part of the airline’s internationalization strategy to cater to the growing demand for air travel.

About Interglobe Aviation Ltd

Interglobe Aviation Ltd is India’s largest airline, known for its low-cost air travel model. It boasts a vast domestic and international network, a fleet of over 437 aircraft, and a market share of more than 60%. With over 650 million passengers served and more than 2,200 daily flights, it is a dominant force in the Indian aviation industry.

Written By Adhvaitha Nayani

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