IndiGo flies 3% on robust Q2 results. Here is what brokerages have to say

Analysts have warned that the expected grounding of additional 26 percent capacities (for 300 days) due to issues with Pratt and Whitney engines will impact FY25 outcome

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Shares of Interglobe Aviation, the operator of low-cost airline IndiGo, rallied 3 percent in the morning trade on November 6 after brokerages reiterated their bullish stance on the company following a strong September quarter performance despite a seasonally weak period.

Analysts at Goldman Sachs assigned a “buy” rating to the counter with a target price of Rs 2,700, saying Q2 profit was driven by one-off reversals and one-off compensations.

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The company swung into black with a profit of Rs 189 crore in the September quarter against a loss of Rs 1,583 crore in the year-ago period. Revenue climbed 19.5 percent on-year to Rs 14,943 crore.

UBS, too, shared a “buy” call with a target price of Rs 3,000, saying that the airline managed the grounding of 15 percent capacities very well during the quarter.

It, however, warned that the expected grounding of additional 26 percent capacities (for 300 days) is set to impact FY25.

ALSO READ: IndiGo: Stellar numbers, a flight for the long haul

P&W overhang in FY25, gloomy outcome 

Analysts at Kotak Institutional Equities shared a similar view, saying the number of grounded aircraft at 40 may grow as high as 80 after Pratt and Whitney (P&W) identified a new issue with powder metal, a key component used to make compressor blades, turbine disks, and combustion chambers for aircraft engines.

“We expect FY25/26 to be impacted by P&W issues, with FY25 seeing the peak impact of ~6 percent available seat kilometer (ASK) growth and modest overhang on rentals due to secondary leases,” the brokerage firm added.

Earlier this year, the American engine manufacturer said around 600-700 aircraft engines were likely to get affected as the company detected powder metal contamination that could lead to cracking of components.

To harness the expected demand growth, the airline plans to increase its fleet size to 350 in FY24. However, the management did not give a number for FY25 due to P&W issues.

Against this backdrop, analysts at Motilal Oswal shared a “neutral” rating on the counter, as the company would have to navigate through various challenges in the near-to-medium term.

ALSO READ: More aircraft to be grounded due to P&W engine issues after Jan 2024: IndiGo

Rising global presence is a positive

IndiGo continues to boost its international offering and recently added six new cities in the recent past in Central Asia.

The 34-destination strong offering of Indigo was up 32 percent year-on-year (YoY) in Q2, while the share of international available seats per kilometre (ASK) also increased to 26 percent YoY.

Analysts at Kotak said the internationalisation of IndiGo’s operations, along with the setting up of aviation hubs over time, would create meaningful value for the company and shareholders.

Motilal Oswal, too, said that the company expected to capture a bigger share of growth from its international market in the coming years as it increased its presence through strategic partnerships (codeshare agreement with Turkish Airlines) and loyalty programmes.

At 11.21 am, the stock was trading at Rs 2,535.15  on the National Stock Exchange, up 1.03 percent from the previous close,

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.