InterGlobe Aviation, which runs IndiGoNSE 1.41 %, and SpiceJet have become the most expensive airline stocks globally, having soared amid the grounding of Jet Airways. InterGlobe has also entered the club of top 10 airlines in the world at a market capitalisation of $8.1 billion. InterGlobe and SpiceJet have gained 80 per cent and 77 per cent, respectively, in the past six months, outperforming the Bloomberg World Airlines index by 65 percentage points.
In addition, InterGlobe and SpiceJet now trade at FY20 price-earning multiples of 24 and 33, respectively.
Analysts continue to be bullish on the stocks and expect 30-50 per cent upside from the current levels. On April 22, Credit Suisse upgraded the target price on InterGlobe to Rs 1,800 from Rs 1,650 earlier. InterGlobe closed at Rs 1,472.30 on the BSE on Wednesday, up 0.3 per cent. SpiceJet fell 0.8 per cent to Rs 126.25.
India’s aviation market is among the fastest growing in the world and requires net addition of 45-50 planes annually to serve increasing passenger demand, according to analysts.
Now, the capacity cuts due to the grounding of Jet Airways — which had 119 planes at its peak — has increased the demand-supply gap. This has eased pressure on revenue per passenger per kilometre, which has improved 10-15 per cent in the past few months. Airlines plan to add 150 planes in the current fiscal, of which about 100 will be by IndiGo and SpiceJet, ET reported on April 23.
Analysts expect 20-60 per cent growth in available seat kilometres (ASKM) — a key determinant of the yield apart from ticket prices — for the two airlines in FY20 compared with 15-20 per cent growth in the previous fiscal.
The sector’s yield at the end of March was around Rs 4.2 revenue per ASKM, which improved to Rs 5.1-5.2 by the middle of April. IndiGo’s yields had dropped 5 per cent in the first nine months of FY19 due to intense competition. According to Credit Suisse estimates, if the elevated yield implies a benefit of Rs 2,000-2,500 crore for Indi-Go, and if it sustains that for a full year, the benefit would be over Rs 10,000 crore. If that happens, ebitdar — a measure of operating profit of airlines — of IndiGo and SpiceJet may improve by twothree times in the current fiscal.
If lenders are able to revive Jet, analysts believe it will be a while before the airline reaches full operating capacity. For instance, Spice-Jet took about three years to regain its old fleet size after it underwent a temporary shutdown in 2014.
Given these factors, marquee investors such as Mattews International, Blackrock, UTI AMC, and HDFC Mutual Fund are showing rising interest in the stocks of InterGlobe and SpiceJet. They have increased their stakes consistently over the past three quarters.