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ICICI Securities
InterGlobe Aviation (Buy)
CMP: ₹1,722.75
Target: ₹1,914
We have factored Ind-AS 116 in our analysis of InterGlobe Aviation’s (IndiGo) finances and thus, introduced an ‘on balance sheet’ liability as well as a right-to-use (RoU) asset along with allocation of erstwhile rentals to depreciation and interest expense in the P&L. These capitalised operating leases (₹16,100 crore as of June 2018) will be marked-to-market and hence, will have a respective forex loss or gain. The MTM gain/loss will be big for IndiGo (about change of ₹1 in exchange rate will drive a forex impact of ₹230 crore based on June 2018 liability) as it has a huge fleet on operating lease (206 airplanes as of June 18). However, this has no cashflow effect and will not impact normalised earnings.
We remain positive on IndiGo for following reasons: 1) Strong volume growth with an improved international mix; 2) improving cost advantage over peers; and 3) organic yield improvement measures adopted by the company.
Strengthening balance sheet and market share (more in the international segment) will keep improving the business salience. We factor-in about 25/30 increase in ASK with fare growth of 0-10 per cent for FY20E/FY21E. The average fare then works out to about ₹4,284 for FY20E, which is sustainable, especially considering the improving route mix and better domestic supply situation. We expect 5 per cent improvement in CASK over FY19-FY21E.
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