Interglobe Aviation shares gain; Goldman Sachs sees 17% upside potential

Shares of InterGlobe Aviation rose over 1 percent in early trade on June 14, buoyed by the company’s growing growth prospects due to the uptick in demand following the sudden grounding of rival Go Air.

The sudden halt in Go Air’s operations due to the company’s bankruptcy crisis led to a surge in demand and a sudden jump in ticket fares for InterGlobe Aviation. In addition, a decline in fuel prices have further boosted growth prospects for the low-cost carrier.

According to analysts at Nuvama Institutional Equities, IndiGo and Air India may thrive in an industry structure that is likely to be dominated by these two players, creating a duopoly. The recent shutdown of Go Air, which has caused market disruption, could potentially have a positive impact on airfares, particularly considering the current robust traffic trends.

At 09.24 am, shares of InterGlobe Aviation were trading at Rs 2,359, up around 1 percent on the National Stock Exchange.

Global research and brokerage firm Goldman Sachs also forecasts a strong growth trajectory for the airline as it is positioned to benefits from the fall of a rival. “Strong traffic, higher market share and lower fuel prices are likely to drive ‘RASK (Revenue per available seat kilometer)-CASK (Cost per available seat kilometer)’ for the low-cost carrier,” Goldman Sachs mentioned in its report.

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However, the brokerage also believes that market share gains will be far stickier but would still structurally improve InterGlobe’s passenger load factor (PLF) and profitability.

Factoring the tailwinds, Goldman Sachs retained its ‘buy’ call for the low-cost airline, with a price target of Rs 2,730. The bullish price target reflects an upside potential of around 17 percent from Tuesday’s closing price.

Meanwhile, a recent report from credit rating agency ICRA, showed that the estimated domestic air passenger traffic reached approximately 131.8 lakh for May, reflecting a 2.3 percent increase from around 128.9 lakh recorded in April. In comparison to the same month in the previous fiscal, there was a year-on-year growth of about 15 percent.

Furthermore, May’s domestic passenger traffic also exceeded the pre-COVID levels of May 2019 by approximately 8 percent. The booming passenger traffic trends suggest that the demand for low-cost carriers are likely to remain upbeat, and with Interglobe being the biggest player in the sector, its growth aspects are likely to prosper.

Nonetheless, investors still remain concerned about the paring of stake by  the company’s promoters, the Gangwal family. One of the two promoter groups has been steadily reducing its stake, with another 5-8 percent offloading likely on July 15 as per reports.

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