IndiGo shares climb 3% on order for wide-body aircraft; Kotak raises target price

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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