FLYING HIGH

domestic aviation space. Its closest competitor Jet Airways (including JetLite) has market share of 18 per cent. Jet is followed by Air India and SpiceJet, 13 per cent market share each. Just to give you an idea about the wide gap in volumes: IndiGo flies more passengers in a month than SpiceJet does in a quarter.

In addition to passenger growth numbers, a near-term trigger would be March quarter results and the management outlook for FY18. ICICI Securities’ analysts highlight the 31 per cent year-on-year increase in passengers. IndiGo: Strong growth in passenger volumes January February March 3.8 3.41 3.61 While fuel costs would be much higher than those in the yearago quarter, analysts believe tailwinds will come back from AprilJune period. Fuel costs rose 38 per cent year over year and 11 per cent sequentially in March quarter. But now, oil prices have stabilised. These, coupled with costlier rupee, should help check costs.

The Street will keep an eye on passenger yields (average fare per mile), under pressure over the last two years. Analysts at HDFC Securities believe that, with industry capacity use of 8788 per cent and expectations of supply additions of 14-16 per cent over the next two years, yields and profitability are expected to improve. They expect annual growth to be 15-17 per cent over next five years (after 22 per cent in the last two years) aided by government policy incentives for regional connectivity and new airports.

Positive outlook and multiple tailwinds have led to earnings upgrades. According to CLSA, “With fuel prices that continue to fall and a rupee that’s getting costlier against the dollar, earnings prospects have improved.” The research firm has raised net profit forecasts for IndiGo by 1-26 per cent for FY17-19.

However, with analysts’ target price ranging from ~1,200-1,250, investors could wait for better entry points.