Stock corner: ‘Reduce’ Interglobe Aviation, earnings were stronger than estimated

Indigo reported stronger-than-expected 4QFY19 earnings driven by higher yields. 9% yoy yield increase was driven by Jet’s closure as well as internal productivity measures. We note that capacity addition by competitors has picked up steam, and may likely pressure yields 2QFY20 onwards. We tweak our FY2020E EPS as we factor in lower costs on account of A321neo aircraft, driving a revised fair value of `1,575. We believe positives are now in the price, downgrade to Reduce (from ADD).

Higher-than-expected yields drive profit outperformance
Indigo reported a healthy 9% yoy increase in yields driven by capacity cuts by competitors, increase in international fares as well as internal productivity improvement measures. This resulted in 11% outperformance in EBITDAR and 23% outperformance in EBITDA. Margins (RASK-CASK) turned positive for the first time in FY2019 on account of higher yields and lower fuel cost.