IndiGo stock down 6% after reporting seventh consecutive quarter of loss

Reacting to the earnings, the stock fell nearly 6% on the NSE on Friday’s opening trade.

“IndiGo’s Q2 losses narrowed sequentially as the industry witnessed a swift recovery post the second covid wave aided by rising consumer confidence with low covid incidence, rising vaccination counts, and relaxation of state testing norms,” analysts at Prabhudas Lilladher Ltd said in a report.

Its yield, which is a measure of average fare per passenger per kilometre, rose to ₹4.19 a kilometre in Q2FY22 from ₹3.70. In a post earnings conference call, the company’s management said yields were higher on account of pent up demand in the international market. These international yields continue to remain at higher levels, the management said.

Investors would reckon that the government had allowed airlines to increase their capacity from 72.5% to 85% in September. Starting October, airlines have been permitted to the operate at full capacity. According to the company’s management, its revenues are fast returning to normalcy, and the company is planning to deploy capacity in a responsible fashion.

The management highlighted that revenue booked in October, that is, ticketing for November-December has recovered to pre-covid levels, with PLF at 76%. Also, cash burn per day decreased by 39% sequentially to ₹20 crore in Q2FY22, the management said.

Further, the management said tier-II and -III cities have shown strong growth and as corporate recovers, there is opportunity to add more capacity on metro-metro routes.

On the flipside, analysts caution that rising crude prices remain a concern for the stock.

“With a faster than expected recovery in demand (corporate travel has recovered to 50% versus January 2020 levels. It expects higher travel post Diwali as more offices open up), the concerns over the normalization of yields remain unanswered. This, combined with higher fuel prices, would prove a double whammy for the stock in the near term,” analysts at Motilal Oswal Financial Services Ltd said in a report.

That said, IndiGo is better placed than competitors. “We believe IndiGo continues to remain better placed than its peers and is likely to emerge stronger post covid, given superior balance sheet ( ₹6,300 crore free cash) with option to further strengthen by ₹3,000 crore via QIP, industry leading cost structure and strong management team,” added the Prabhudas Lilladher report.