Is Indigo Airlines a Rare Investment Opportunity in an Elevated Market?

[Biswadeep Sarkar, Kolkata] The Indian stock market is currently on a remarkable upward trajectory, consistently reaching new heights with each passing day. Among the recent milestones, the Nifty50 breaking through the 20,000 mark stands out. While this surge in the market is undoubtedly impressive, it has also raised concerns among many fund managers regarding elevated market valuations. In this environment of soaring possibilities, we aim to provide you with a closer look at Interglobe Aviation, popularly known as Indigo Airlines.

Industry Overview: 

The Indian aviation market faced severe challenges during the COVID-19 pandemic, but it is making a resilient comeback, albeit with its unique set of hurdles. According to an IATA report, the air transport sector has made a substantial contribution to the country's GDP, accounting for approximately USD 35 billion. Moreover, as per Mordor Intelligence, the Indian Aviation Market is poised to grow from USD 10.89 billion in 2023 to USD 12.55 billion by 2028, at a commendable CAGR of 2.87% during the forecast period (2023-2028). This growth trajectory might receive further impetus due to the government's recent initiatives like Udan and PLI. Notably, the number of air travelers in India is projected to triple to 520 million by 2037 from 158 million in 2017 (source). Presently, the country boasts 131 operational airports, encompassing 29 international, 92 domestic, and 10 custom airports.

Market Leaders: The Indian domestic aviation market is predominantly dominated by Indigo Airlines and the Air India group. These two industry giants collectively commanded an impressive domestic market share of around 81.3% in 2023, with IndiGo carrying 56.2% of the nation's passengers and Air India accounting for 25.1%. In a significant development, IndiGo recently placed a historic order for 500 A320neo aircraft from Airbus during the Paris Airshow, marking the largest single-carrier deal in civil aviation history. Additionally, earlier this year in February, the newly privatized Air India ordered 470 narrow and widebody jets from both Boeing and Airbus.

Growth Prospects: The Indian government holds ambitious long-term visions for the aviation industry, envisioning it as a potential contributor of up to $1 trillion annually to the Indian economy by 2043. This promising outlook is bolstered by several factors, including a burgeoning population, rising income levels, a robust economy, and substantial investments in infrastructure and technology.

Interglobe Aviation:

Strengths: Interglobe Aviation, as India's leading airline, commands a lion's share of the domestic air travel market. Furthermore, data from the first quarter of FY24 indicates a notable shift in market share, favoring domestic airlines for international travel involving India. Among domestic carriers, InterGlobe Aviation has emerged as the biggest gainer, securing a market share of over 17 percent following a substantial increase of 760 basis points.

IndiGo, recognized as one of the world's fastest-growing low-cost carriers, operates a vast network with over 1,800 daily flights connecting 78 domestic cities. The airline is also expanding its international footprint, with plans to serve 32 overseas destinations using a fleet of over 300 aircraft.

As per Emkay Global, IndiGo is well-positioned to capitalize on robust air traffic growth in India, expected to reach 12 percent CAGR over FY24-30, through route optimization and capacity enhancements.

Challenges: The aviation industry faces persistent challenges due to the ever-rising fuel prices. Regulatory changes in the market can also significantly impact the operations and profitability of Indigo Airlines. Additionally, notable issues include Pratt & Whitney (P&W) engine problems, which have escalated, with parent company RTX Corporation anticipating over 3,000 engine recalls for inspection (compared to the previous estimate of over 1,200 engines), as well as labor shortages and higher attrition rates.

Conclusion:

Despite the industry-wide challenges, Interglobe's efficient operations and low-cost carrier model have enabled it to report consistent profits for the past three quarters. Following the recent exit of the Gangwal family, the company's stock has experienced significant corrections and is currently trading at an appealing valuation, presenting the possibility of upward movement as indicated by technical analysis. This positions Interglobe Aviation as a compelling prospect in the aviation industry.

Disclaimer: Under no circumstances should any person on this platform make trading decisions based solely on the information discussed herein. You should consult a qualified broker or other financial advisor prior to making any actual investment or trading decisions. All information is for educational and informational use only. Byapar does not guarantee, vouch for, or endorse any of its contents and hereby disclaims all warranties, express or implied, relating to the same. The Author has an active personal investment in the mentioned stock.