The stock of Interglobe Aviation, the parent company of India’s low-cost carrier Indigo, is on a falling spree as it has lost almost 6% of its value in a month!!

The share was range-bound earlier this year as the stock went sideways. Although it tried to break through its resistance at Rs 2,126.20 [marked in blue], sellers remained strong above that level as the stock remained in the range. However, around mid-February the stock broke through its support and declined as the Gangwal family offloaded their stake through a block deal.

For the uninitiated, Rakesh Gangwal and Rahul Bhatia are the two founders of Indigo. They formed the company together in 2006, but their relationship soured around 2019 when Gangwal accused Bhatia of several governance lapses and questionable related party transactions.

The fight carried on until February 2022 when Gangwal resigned from the Board of Indigo while announcing a full dilution of his 37% stake in the carrier over a five-year period! The block deal carried out in February 2023 was part of said announcement as the stock fell over 4% in a day.

It traded below Rs 2,000 per share till April 2023 as buyers remained hesitant during that period. However, once April 2023 began, the stock saw renewed buying as Go First was going through financial hardships. Amidst Go First’s legal battle with engine maker Pratt & Whitney, shares of all aviation stocks (including Indigo) saw good buying pressure.

On 3rd May, Go First announced its bankruptcy as it was unable to keep up with its financial liabilities and decided to close shop. This sent the shares of Indigo flying as it jumped 8% in a single day. This also cemented Indigo’s uptrend as the stock saw impressive buying pressure from there on.

The void left by Go First resulted in other airlines filling the gap, which helped their stocks witness impressive growth. Indigo surged over 9% in a month as the airline announced a fare hike in its bid to turn profitable, which in turn fueled its uptrend. June was particularly eventful for the stock as it added 6 new international destinations as part of its international expansion. 

Moreover, the company placed a massive $50-billion order for 500 new aircrafts with Airbus as investors cheered the airline’s ambitious plans as the stock became the first ever Indian aviation company to cross a valuation of Rs 1 lakh crores! Furthermore, with growing travel traffic, the company reported a profit after many quarters of losses. By this time, Indigo had grown so large that it held almost 2/3rds of the domestic aviation market!!

Although the stock saw some correction due to the surging Aviation Turbine Fuel (ATF) cost, the prospects of the stock remained bright as several brokerages had ambitious price targets for the stock. It touched a lifetime high of Rs 2,745.10 per share before it saw some correction.

However, the level of Rs 2,750 seemed too strong for buyers to beat as the stock reversed from those levels. A Rs 30 lakh fine by the aviation watchdog DGCA due to systemic deficiencies did not help as the stock began losing its steam. Although the stock reported robust profits in Q1FY24 while beating all estimates, the stock tanked almost 5% and broke through its trend line. 

 

 

The stock was consolidating and recovering from its decline, but another stake sale by the Gangwal family tanked the stock another 4%! Moreover, the stock declined even further as fears of surging ATF prices sent the shares of all aviation stocks tumbling!!! 

As such, the shares of Interglobe Aviation have lost 10% of their value in less than 2 months!!

What is the future outlook??

Fundamentally, the airline performed well in its latest quarterly result. The company’s revenues jumped 29.8% to Rs 16,683 crores in the first quarter of FY24 while its expenses saw a marginal decline. This helped the company report a profit of Rs 3,091 crores (its highest ever in a quarter) against a loss of Rs 1,064 crores in the corresponding quarter last year.

 

 

Technically, the stock is trading below its 5,20, and 50-day averages but well above its 100 and 200-day averages. Moreover, at an RSI of 40.72, the share is neither overbought or oversold but is getting close to the RSI level of 30, which indicates an oversold position, which is normally followed by buying pressure.

 

Indigo is currently the largest Indian airline, holding 63% of the Indian aviation market! The direct competitor of the company is the Tata Group’s aviation companies (Air India, Vistara, and Air Asia India) which hold around 25% in the market. This gives Indigo an unprecedented amount of power over the Indian domestic aviation industry.

Moreover, the company expanded into 6 new international locations in June with plans to introduce new flights across Africa, Central Asia, and Europe as the company has ambitious international plans. Moreover, with its latest 500 aircraft order with Airbus, the airline will become a major player internationally!! 

According to the Indian Brand Equity Foundation (IBEF), India’s travel industry is set to grow to $125 billion by FY27 as the Indian aviation industry is the third largest and the fastest growing in the world! Foreign tourism into the country has also been growing as the number of foreign tourists surged 106% YoY in the H1CY23! With a growing middle class and increasing demand for travel and tourism, Indigo is set to gain in the long term as its prospects look bright.

The recent weakness in the stock was on account of market corrections, promoter divestment, and adverse cost forecasts. Moreover, the stock could see further weakness in the coming sessions as the government has announced a 14% hike in the price of ATF, which would lead to higher operating costs and weaker margins. 

Therefore, although the stock could see some weakness in the short term, its medium and long-term prospects remain bright.