Interglobe aviation result for March quarter,after exit of its president Aditya Ghosh, was a bummer. As I understand Aditya ghosh was the mind behind indigo’s success. His exit is definitely not a positive outlook for the company.
The company reported a 73% decline in net profit . Operating profit was approx. 22% down too. Also margins were down to 19.5% for march quarter.
So a usual question came to my mind. Could it be an opportunity for long term?
I understand that Indigo has been victim of severe competition, higher fuel price and adverse forex exchange position.
Fuel which constitutes 40% of the cost for the company was 33.55% up and major reason for muted result. Moreover,Pricing pressure led to lower yields of 5.6%.
In my opinion this result creates a big gap in the balance sheet, which would take some time to cover up, If things go right. But, I see it otherwise as fuel price and forex pressure are here to remain for sometime.
Even management believes that prevalent discounted ticket prices are not sustainable, given high cost on fuel and weak rupee. And is looking to match the prices with competitors.
Now let’s see on the positive side.This quarter we see capacity increase of 21% and passenger growth at 24%, which helps company to reach load factor of 89%(Load factor is an important indicator in airlines to judge efficiency),which is really good as per the industry average.
Indigo is targeting an overall capacity addition of 25% for full year. As per my thinking new capacity would be expected to be used on current routes and new routes, which includes regional connectivity.
Additionally, We checked consumer expenditure consensus for past 6 months and 12 months. Now here is the interesting part, we see straight growth of expenditure by consumers most of the months for both the time period. Whereas other industries seem to struggle.
In my opinion there are lot of head winds still to disturb the business, for eg. fuel price, forex exchange and more. But I would insist to keep interglobe aviation in your watch list but, wait until you see stock make base. And invest when it show reversal or improvement in quarter results. As it is the front runner in the airline sector.Also, it has expansion plan in place and new opportunities of regional connectivity and of international routes coming its way.
Experience of 8 years in stock investment. I learned everything by making a lot of mistakes and losing a good amount of money, I am here to make sure you don’t lose on either: Hope or Money.