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Covid-19 infections are rising exponentially in India and naturally, that makes people fearful of venturing out. This means passengers are likely to delay their travel plans, which in turn postpones the recovery in the aviation industry. Unsurprisingly then, increasing covid-19 cases have emerged as a big worry for airlines.

But shares of InterGlobe Aviation Ltd don’t seem to be reflecting these concerns adequately, trading at around 1,605 apiece. InterGlobe runs the IndiGo airline, India’s largest by market share. So far in 2021, the IndiGo stock has declined by just around 7%. True, this represents an underperformance vis-à-vis the Nifty 500 index, which has increased by nearly 6% during the same time. Even so, analysts reckon IndiGo’s shares have been quite resilient.

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As an analyst requesting anonymity said, “The biggest factor in favour of IndiGo is that investors probably think rising covid-19 cases are probably a 2-3 months affair. Remember, investors are always looking ahead and the scenario is not as bad as it was last year given that no one is talking about a full-fledged nationwide lockdown yet." To that extent, the domestic aviation industry is indeed on the recovery journey, albeit the pace has slowed lately with a decline in average daily passengers in March.

Faster pace of vaccinations would generally help improve passenger confidence to travel. “In the medium term, you are looking at more people getting vaccinated and that’s encouraging. Frankly, this (IndiGo) is the only play which is the safest bet if someone is looking at aviation," says the analyst mentioned above.

Note that smaller peer SpiceJet Ltd’s shares are down 28% so far this calendar year. IndiGo has remained one of the key beneficiaries of the pandemic in terms of market share gains. Its domestic market share in February 2021 stood at 54.2%, according to the Directorate General of Civil Aviation (DGCA) and the measure had touched a high of 60.4% in July 2020. From a medium-term perspective, some believe that IndiGo’s market share could taper.

“We forecast IndiGo’s market share to normalize at pre-covid levels of 49-50% going forward as SpiceJet boosts operations (recently, SpiceJet signed a deal for the sale and leaseback of 50 new aircraft), likely privatization of Air India and resumption in Jet Airways’ operations," wrote analysts from Motilal Oswal Financial Services Ltd in a report on 12 April.

The brokerage firm added, “We reiterate our neutral stance on IndiGo—with the possibility of further delays in the (sector’s) recovery to pre-covid levels."

Motilal Oswal analysts value IndiGo at 16 times FY2023 earnings per share of 95 to arrive at a target price of 1,530.

To be sure, near-term outlook remains clouded with demand remaining tepid and crude oil prices firm. As such, expectations from the March quarter results are not rosy. Paarth Gala, analyst, Prabhudas Lilladher Pvt. Ltd, wrote in a report on 7 April, “We expect IndiGo to widen losses quarter-on-quarter, given the 25% increase in aviation turbine fuel prices and pressure on unit revenues due to declining passenger load factors and yield owing to the second wave of covid-19."

Nevertheless, IndiGo’s enviable strong balance sheet and low-cost structure are likely to continue to hold it in good stead during these rough times and perhaps support its stock as well. As on 31 December 2020, the airline was sitting on free cash and restricted cash of 7,444 crore and 10,920 crore, respectively.

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