IndiGo rating: Recommend ‘sell’ with revised fair value of Rs 925

Indigo reported better-than expected Q4FY20 earnings driven by higher yields and volumes. Q4 results are, however, not very relevant in the context of near-term uncertainties. We anticipate a longer drawn recovery with a large loss expectation for FY21E. Lack of clarity on demand revival drives our ‘sell’ rating. Roll forward to March 2022E drives a revised fair value of Rs 925 (Rs 900 earlier).

IndiGo reported a decent quarter with revenues beating our estimates by 13%, driven by 5% higher RPKs and 7% higher yields. Overall revenues were higher by `950 crore versus forecasts. Costs, however, remained elevated on account of higher maintenance expense for older A320ceo aircraft, and CASK ex-fuel ex-forex increased 19% y-o-y, resulting in only Rs 400 crore higher Ebitda. Despite good yields, loss of Rs 280 crore (excl forex loss) is representative of the difficult operating environment faced by IndiGo Q2FY20 onwards, primarily due to slow neo deliveries.