As Indigo’s net worth erodes, investors bet on revenge travel
Summary
- The company’s net loss of ₹1,147 crore in the March quarter was worse than analysts’ expectations
Shares of InterGlobe Aviation Ltd, which runs India’s largest airline IndiGo, are 17% higher than their pre-covid highs of early 2020.
Investors appear to have concluded that the company has come out far stronger after the pandemic, especially when compared to its weaker rivals. This is reflected in the company’s market share in domestic aviation. In the March quarter this year, its market share stood at 54%, up from 48% a year ago.
“But while market share is higher, this has come at a great cost. Notice that the firm’s net worth has almost completely evaporated," says an analyst at a domestic institutional brokerage.
A year ago, InterGlobe’s net worth stood at ₹5,900 crore. This fell to just ₹70 crore at the end of March 2021. With losses expected in the June quarter as well, the company will have a negative net worth soon, unless it manages to close its proposed ₹3,000 crore qualified institutional placement (QIP) before the quarter ends.
“The pandemic has left deep scars on the company’s financials, although none of this is reflected in the company’s shares. Investors seem to be betting on a resurgence in travel post-covid, led by the so-called revenge travel phenomena," adds the analyst.
In the US, for example, travel is already back to pre-covid levels owing to pent-up demand.
Even so, the damage on the balance sheet needs to be priced in to some extent, although investors seem to be in no mood to relent. The company’s shares were unmoved on Monday despite weak Q4 results. The company’s net loss of ₹1,147 crore was worse than analysts’ expectations. For instance, Kotak Institutional Equities had estimated losses at ₹639 crore, at nearly the same levels as Q3. The Street was expecting IndiGo to report a loss as the recovery in domestic passenger traffic that the Indian aviation sector was witnessing till February, got stalled due to the second wave of covid-19 infections and related restrictions. Additionally, aviation turbine fuel prices were higher. In fact, higher fuel cost is one reason for the sequential increase in IndiGo’s negative spreads and cash burn.
Cost per available seat kilometre (CASK) in the March quarter was higher than revenue per available seat kilometre (RASK) by ₹0.60.
Cash burn increased from ₹15 crore per day in Q3 to ₹19 crore per day last quarter.
IndiGo’s June quarter financial performance is expected to be worse than the March quarter given that the adverse impact of the pandemic has been more pronounced in the current quarter in terms of weakness in air traffic.
What augurs well is that IndiGo has managed to pretty much maintain its cash position. Its free cash at the end of March stood at ₹7,099 crore vis-à-vis ₹7444 crore at the end of December. Analysts point out that the various liquidity measures that the airline has undertaken during the year have helped offset cash burn during the fiscal 2021.