Interglobe – Dominating Indian air travel segment which is effectively controlled by 2 players. Excellent financial profile, available at reasonable valuation

Why we invested in Indigo

• India is 3rd largest domestic market in terms of number of passengers . However, it is significantly under penetrated compared to global standards offering good potential growth

  • India: 0.13 seat per capita

  • Vietnam: 0.42 seat per capita

  • Brazil: 0.56 seats per capita

• Good growth in market

  • In Apr ’25, 143.6 lakh passengers travelled on domestic routes. This is 8.43% YoY growth

• Indigo is market leader by significant margin (seat capacity market share for CY24)

  • Indigo : 53.4%, Air India Group: 27.6%, Akasa : 3.4%, SpiceJet : 3.5%

  • Considering lower load factors for smaller airlines, volume captured by Indigo is higher compared to seat capacity share

    
    

•  Considering supply situation, Indigo is expected to continue to be market leader

• Expecting valuation upside driven by increase in PAT & possibility of rerating

  • FY25 PAT      : 7258 Cr

  • Market cap : 2,04,000 Cr

  • TTM PE        : 28.1x PE

  • Net cash      : 14,324 Cr

    
    

• As per analyst estimates, on FY26 basis, Indigo is trading at below 20x PE

  • This is driven by (a) 12.5% increase in capacity and (b) downturn in crude oil price. This looks like attractive price considering, Indigo is airline industry in India is effectively duopoly.

  
  

• Interglobe is ~ 25% EBITDA margin business. In FY25, fuel expense is ~ 31% of total revenue. If fuel cost as percentage of sale is controlled, it Interglobe become very profitable business (RASK – CASK increases)

In last 1 year, crude has cooled off significantly. During current geopolitical crisis, crude has moved up. In longer term, considering demand supply situation, crude is expected to remain in moderate price zone. In next few years,

• Crude oil demand is expected to plateau at 105.5 mb / d

• Crude oil production is expected to reach 114.7 mb / d

  
  

Charts

Stock looks in uptrend since Mar 2020. There were only 2 significant drops to 52 WK MA. Last one ended in Jan 25 and price has moved up. So, there is some run away ahead. Difficult to say whether it's Wave 5 or Wave 3 continuing but either way it's bullish especially combined with fundamentals above

Key risks to stock price upside

• Biggest risk is airline is fuel price escalation. Indian airline market has limited number of players with meaningful capacity to service customers.

• So, our belief is, if there is significant change in fuel price, Indigo will be able to pass significant part of it to consumers.

Disclaimer

This is not advice to buy stock. The information provided is for discussion and informational purposes only. Please consult a certified financial advisor before making any investment decisions.