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Centrum Broking
InterGlobe Aviation (Buy)
Target: ₹1,638
CMP: ₹1,330.70
Air passenger traffic grew 41.2 per cent m-o-m in September 2020 and trends in early October (during the long weekend) to local holiday destinations indicate a recovery in propensity for leisure travel, and augurs well for the upcoming holiday season in November and December.
Fuel costs remain benign, and 2 per cent appreciation in the rupee vis-à-vis the USD in Q2FY21 provides incremental relief.
This, along with IndiGo’s cost reduction efforts (salary cuts, headcount reduction, cut in discretionary expenses, and faster retirement of CEO fleet) help bring down the threshold traffic levels to approximately 70 per cent of FY20 in order to stop burning cash.
The Indian aviation sector has not received any material relief/liquidity support from the government. This has strengthened IndiGo’s competitive position further, given its strong balance sheet and liquidity.
IndiGo has gained 12 per cent market share YTD, but we factor it will retain only 50-55 per cent of this on sustainable basis. We have raised our RPK/EBITDAR estimate by 12 per cent/16 per cent in FY22 to factor the recent strength in traffic recovery and IndiGo’s market share gains.
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