IndiGo: This aviation stock surged nearly 80% in 8 months. Is it still a ‘buy’
The'reduce' rating on IndiGo is maintained by InCred Equities because robust tariffs are countered by high operational costs. Growing compensation costs and escalating airport charges are causes for concern as they affect profitability. The goal price is now ₹2,400. For 4QFY24, IndiGo announced a ₹30 billion net profit.
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May 27, 2024
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InterGlobe Aviation, the parent company of India's largest airline, has experienced a remarkable surge in its stock value over the past eight months. Starting at ₹2,381 per share, the stock has now reached ₹4,271, resulting in a substantial gain of 79.37%. In a recent trading session, the stock even surpassed the ₹4,500 mark, reaching a new record high of ₹4,529 per share.
However, according to a report by InCred Equities, the stock's upward momentum may not continue. The brokerage has maintained its 'reduce' rating on InterGlobe Aviation, citing concerns about rising salary expenses and increased costs related to airport operations.
These factors are putting pressure on the airline's profitability, despite the positive impact of strong tariffs on revenue growth. InCred Equities remains cautious about the stock due to its elevated cost structure. Although the brokerage has raised the target price to ₹2,400 per share, this still indicates a significant downside of 43.60% from the stock's latest closing price.
Dark clouds gather - rapid industry fleet rise, wage cost pressure
From January to April 2024, there was a slight increase of 3.5% in domestic industry traffic compared to the previous year. However, IndiGo experienced a significant growth of 11.5% and Tata Group airlines saw an impressive rise of 18.8%. This can be attributed to the exit of GoAir from the market in May 2023, which allowed existing players to gain a larger market share.
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