Business Class And BluChip Launch Will Advance Future Performance

Key Takeaways

• Launching Business Class and BluChip loyalty program aims to boost revenues, customer retention, and operational insights, enhancing IndiGo's financial performance.
  
• International market expansion and digital investment in booking platforms intend to diversify revenue and improve margins through increased direct bookings and reduced costs.
  
• Rising costs, competitive pressures, and operational challenges threaten IndiGo's profitability and efficiency, necessitating strategic adjustments to sustain growth and manage margins.

Catalysts

Engages in the operation of IndiGo airline in India and internationally.

• IndiGo's launch of a new Business Class on key metro routes could tap into a higher-yield passenger segment, potentially increasing revenues and improving net margins.
  
• The introduction of the BluChip loyalty program is expected to drive customer retention and spend, leading to increased passenger revenues and enhanced insights for operational efficiency.
  
• Reduction in grounded aircraft and associated expensive mitigation costs will likely improve net margins, as the company expects groundings to decrease to sub-60 levels by the end of the calendar year and further into the next financial year.
  
• Expansion into international markets, with new destinations and increased international capacity share goals, is poised to boost overall revenue growth by tapping under-served markets and diversifying revenue streams.
  
• Investments in digital transformation, such as revamped website and app, could increase direct bookings, lower distribution costs, and improve net margins by capturing a larger share of ancillary revenues.

InterGlobe Aviation Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming InterGlobe Aviation's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 10.3% in 3 years time.
• Analysts expect earnings to reach ₹110.2 billion (and earnings per share of ₹253.75) by about December 2027, up from ₹66.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹133.7 billion in earnings, and the most bearish expecting ₹83.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.0x on those 2027 earnings, up from 26.0x today. This future PE is greater than the current PE for the IN Airlines industry at 11.8x.
• Analysts expect the number of shares outstanding to grow by 3.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.46%, as per the Simply Wall St company report.

InterGlobe Aviation Future Earnings Per Share Growth

Risks

• IndiGo reported a net loss of ₹10 billion due to increased fuel costs and aircraft groundings, which adversely impacted net margins.
  
• The rising competitive intensity in international markets could pressure revenue growth as IndiGo expands its international capacity.
  
• Inflationary pressures and rising VAT on aviation fuel could further erode net profit margins, affecting overall earnings if these costs are not offset by increased revenues.
  
• IndiGo's operational challenges from infrastructure limitations at major hubs like Delhi and Mumbai could affect capacity expansion and operational efficiency, potentially impacting revenue and profitability.
  
• System outages and weather-related disruptions have posed operational challenges, potentially affecting IndiGo's ability to sustain consistent revenue streams and maintain low costs.

Valuation

• The analysts have a consensus price target of ₹4913.25 for InterGlobe Aviation based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹5500.0, and the most bearish reporting a price target of just ₹4050.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₹1066.8 billion, earnings will come to ₹110.2 billion, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 14.5%.
• Given the current share price of ₹4465.55, the analyst's price target of ₹4913.25 is 9.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.