Why IndiGo shares jumped 10% despite weak Q4 results?

Shares of InterGlobe Aviation, the parent company of IndiGo, rallied 10% in the intraday trade on Thursday, in an otherwise weak broader market, even as the airline reported weak earnings for the March quarter of 2022. The stock got a boost amid a report that the low-cost carrier is planning to hike ticket prices to recoup losses due to higher fuel expenses, which impacted its fourth-quarter results.

In a post-earnings conference call, the company’s CEO, Ronojoy Dutta said the management is working to return the airline to profitability. “As we work to return the airline to profitability, we are focused on maintaining our cost leadership position and continuing to build the most efficient network in the region,” he said.

Boosted by earnings optimism, IndiGo shares opened marginally higher at ₹1,656, snapping two session losing streak, and gained as much as 9.94% to hit an intraday high of ₹1,808.5 on the BSE. With a market capitalisation of ₹66,660.6 crore, the largecap stock traded higher than 5-day moving averages, but lower than 20-day, 50-day, 100-day, and 200-day moving averages. The stock has gained 4% in a week, while it dropped 7.5% over a month and more than 14% in the calendar year 2022. The aviation stock has delivered flat returns in the last one year.

The country’s largest airline, in terms of passengers and fleet size, saw its consolidated net loss widening to ₹1,681 crore in Q4FY22, versus ₹1,147 crore in the same period last year, due to demand destruction caused by the Omicron virus as well as high fuel costs and a weakening rupee. However, revenue from operations jumped 28.9% year-on-year to ₹8,020 crore, aided by a strong traffic rebound in the latter half of the quarter.

During the quarter under review, total expenses soared 31.5% year-on-year to ₹9,885 crore. The airline’s passenger ticket revenues jumped 38.4% to ₹6,884 crore as compared to the same period last year, while ancillary revenues surged 18.8% to ₹1,058 crore. The airline also witnessed an increase in the number of passengers by 10.3% in the fourth quarter compared to the same period last year.

Commenting on Q4 results, Dutta said that the March quarter had been difficult because of the demand destruction caused by the highly contagious Omicron variant of Covid-19 in the first half of the last fiscal. “Although traffic rebounded and demand was robust during the latter half of the quarter, we were challenged by high fuel costs and a weakening rupee. We believe IndiGo is best positioned to maximise revenue in a recovering market,” he added.

Post Q4 results, most of the analysts remained bullish on the stock. Global brokerage JP Morgan has upgraded IndiGo stock to overweight, saying that March quarter earnings missed estimates, but yield trend post omicron surprises positively. The brokerage raised the target to ₹2,000 from ₹1,825 per share.

Credit Suisse also maintained an outperform call on the stock, but cut target price to ₹2,200 from ₹2,500 per share.