IndiGo shares climb 3% on order for wide-body aircraft; Kotak raises target price
In Thursday's trading session, shares of InterGlobe Aviation, the operator of IndiGo Airlines, surged 3% to reach a record high of Rs 4,098.45 on the BSE. This uptick followed the company's announcement of placing an order for 30 Firm A350-900 aircraft.
Shares of InterGlobe Aviation, which runs Airlines, rose 3% to an all-time high of Rs 4,098.45 on BSE in Thursday’s trade after the company placed an order for 30 Firm A350-900 aircraft. Meanwhile, domestic brokerage Kotak Institutional Equities increased the target price of IndiGo to Rs 4,700, signalling an upside potential of 15.5%.“IndiGo’s wide-body aircraft order should be seen as an enabler to expand the range and size of its international offering, while not being central to its international growth strategy. As we await clarity on product and financing, we build in the lower end of the 6-12% impact that the 30-100 aircraft order can have; fair value increases to Rs 4,700 on roll forward,” stated the report by .
The brokerage has revised the estimated fair value, factoring in a 6% combined impact of the ASK addition, growing share of high-margin international ASK and also the related diversification away from the highly competitive domestic market.
Indigo has clarified that the role of wide-body aircraft is to expand the range and size offering of its aircraft, enhancing the case for converting more international journeys involving India being direct from India to the end destination. This is incremental to its similar existing strategy of doing the same (to a lesser extent than wide-bodied) through its XLRs.
The order for the aircraft comes at a time when the company is confident of the supply of its narrowbody single family of aircraft into the middle of the next decade. Indigo’s wide-body aircraft order can be seen as an enabler to expand the range and size of its international offering, while not being central to its international growth strategy.
Kotak analysts say that IndiGo shared using the learnings from operating narrow-body aircraft and competing in a highly competitive domestic market while aiming for cost leadership in the wide-body market. It shared the basic tenets of its domestic playbook (courteous, hassle-free service, OTP, affordable fares), which may not change.
Currently, IndiGo operates over 350 aircraft. Last year, in June 2023, IndiGo placed the largest ever single aircraft order by any airline for 500 aircraft with Airbus. With that, the outstanding orderbook of A320 Family aircraft stands at almost 1,000 aircraft which are yet to be delivered well into the next decade.
The stock has been gaining positively in recent years, with 96% gains in the last one year and 164% in the last five years. In this calendar year alone, the stock has gained 36.5%.
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Source: Stocks-Markets-Economic Times
