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Home / Markets / Mark To Market /  Clouds are lifting for IndiGo, but it's not clear skies yet

Aviation has been one of the industries worst affected by the pandemic. Even InterGlobe Aviation Ltd, which runs India’s largest domestic airline, IndiGo, wasn’t spared; it has reported massive losses since the pandemic struck last year. But the good news is that there is optimism now on the December quarter performance, with traffic recovery in progress and yields remaining strong.

“We continue to observe strong yields in December as in early November 2021. Passenger yields are currently at about Rs4.5. This combined with stronger load factors (about 80%) would enable a potentially profitable Q3FY22," analysts at Credit Suisse Securities (India) Pvt. Ltd said in a report on 8 December. Yields are a measure of pricing for airlines. During Q2FY22 and Q1FY22, IndiGo’s yields stood at 4.19 and 3.48 respectively, according to its earnings presentations.

Even so, how December shapes up needs monitoring given the volatility driven by the coronavirus news flow. Recall that last year, IndiGo saw weak demand in the second half of December, which led to some disappointment on the yields front. Further, while crude oil prices have currently softened from their recent highs, it remains to be seen if prices settle at lower levels on a sustained basis.

 

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Low altitude (Bloomberg)

Meanwhile, the airline will conduct an extraordinary general meeting (EGM) on 30 December on a joint requisition from its promoters. This is aimed at removing the transfer restriction articles from its Articles of Association.

Credit Suisse’s analysts said, “Removal of “tag along" and “right of first refusal" rights for the sale of shares is progressive. This may enable both sides to work together and pave the way for Mr Gangwal to reduce his shareholding." Even so, the brokerage does not envisage any transaction in the near term as IndiGo needs to recover from the covid-19 setback and realize more of its potential.

Note that the airline has reported a net loss of about 5,800 crore for FY21. Loss for the half year ended 30 September is at about 4,600 crore. Additionally, its net worth has turned negative this financial year.

But investors remain confident of IndiGo’s ability to bounce back meaningfully when air travel operations become normal, given its high market share and relatively better financial health. This reflects in its stock, which has risen as much as 32% from its pre-covid highs in January 2020. Although, the shares have declined nearly 17% from its 52-week high on 16 November. In the near-term, investors would do well to track news flow on the Omicron variant of coronavirus.

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