This time around, in a typically leaner September quarter, aviation firms were expected to land comfortably. Better yields were one reason for the optimism. However, InterGlobe Aviation Ltd’s 9% year-on-year yield improvement has beaten Street expectations by a big margin. For comparison: SBICAP Securities Ltd and Motilal Oswal Securities Ltd were expecting the measure to improve by just 2% and 2.3%, respectively.
The company that runs the IndiGo airline saw better revenue management during the September quarter, which helped yield performance. For an airline, yield is the passenger revenue per revenue kilometre.
It’s Ebitdar of Rs1,557 crore, a 61% jump from the previous year same quarter, is far ahead of Street estimates. Ebitdar is short for earnings before interest, tax, depreciation, amortization and rentals, and is an important measure of profitability for airlines. Accordingly, IndiGo’s Ebitdar margin expanded 621 basis points to 29.4%. A basis point is 0.01%.
A slower pace of 6% growth in fuel costs supported IndiGo’s profitability. That apart, better revenue management and the fact that the company received credits from Pratt & Whitney and Airbus related to aircraft grounding and delivery delays. The company hasn’t disclosed the exact quantum pertaining to these credits and therefore, it is difficult to evaluate the extent of benefit owing to this on the overall numbers.
A combination of these factors meant IndiGo’s reported net profit surged almost fourfold to Rs551 crore.
Meanwhile, the airline has a comfortable cash position what with its total cash at the end of September at Rs12,925.6 crore (including recently raised funds through an institutional placement programme), out of which Rs7,602 crore is free cash.
In the last one year, after underperforming the benchmark Sensex in the initial few months, IndiGo’s shares have outperformed. Currently, according to Bloomberg data, the stock trades at nearly 22 times estimated earnings per share for this fiscal year. Even as the September quarter results boost confidence, valuations aren’t particularly cheap. Plus, Brent crude prices flirting with $60 a barrel do not encourage. Better yields last quarter gives some confidence that the company can cope with higher crude oil prices, said an analyst. However, any sharp increases in crude oil will be detrimental to sentiments for the stock. It goes without saying that better yields will be a positive.
IndiGo had expressed interest in Air India to further its ambitions of flying internationally. Any news flows on this front could be a critical factor for the stock.