Q4FY18 RESULT UPDATE RETAIL EQUITY RESEARCH InterGlobe Aviation Ltd Plastic Products BSE CODE:539448 NSE CODE: INDIGO Bloomberg CODE: INDIGO:IN SENSEX: 34,915 BUY Rating as per Midcap 12months investment period CMP Rs. 1,182 TARGET Rs. 1,438 RETURN 22% 7 th May, 2018 Near term disappointment...an opportunity InterGlobal Aviation Ltd (Indigo) is one of the most efficient low cost carriers (LCC) with a market share of 40% in Indian aviation sector. Q4FY18 reported Revenue grew by 20% YoY. But negatively impacted with a 73% YoY fall in PAT due to higher discounts and rise in fuel cost. Going forward we expect pass through of higher fuel cost leading to improvement in margin. As engine issues have been resolved; going forward aggressive capacity addition and cost rationalisation will help Indigo in maintaining its competitive advantage. We trim our EPS estimates by 6% to factor in higher fuel prices and expect earnings to grow by 20% CAGR over FY18-20E. We lower P/E multiple valuation to 17x (20x earlier FY19E) given near term impact on margins while we roll forward to FY20E, with target price of Rs1,438 and maintain to BUY. Revenue growth stable... Indigo s Q4FY18 revenue grew by 20% YoY, led by strong passenger growth which grew by 26% YoY. In Q4 the ASK (Average seat kilometre) grew by robust 21% YoY, despite the engine issues which is positive. Indigo added 6 new aircrafts during the quarter and current fleet strength is at 159 aircrafts. Management has indicated that engine issues has been resolved and expects aircraft deliveries to ramp-up going forward. Indigo has increased the ASK guidance to 25% for FY19E from 20% earlier. We factor ASK to grow by 22% for FY19E and factor revenue to grow by 24% CAGR over FY18-FY20E. Earnings outlook continue be strong... Despite impressive capacity utilisation of 88% for the quarter and strong passenger growth of 26% YoY, EBITDA declined by 74% YoY to Rs130cr and PAT declined by 73% YoY to Rs118 cr. The impact on margins was largely due to sharp decline in yield by 6% YoY largely due to inability to pass through of higher fuel cost (ATF). Weakness in yields was primarily due to low ticket price in first 0-15 day period during the quarter owing high competition despite higher ATF prices. However, management has indicated that yields have started to inch up recently. Also Indigo booked a forex loss of Rs93cr on account of INR depreciation. Going forward we believe that given higher ATF prices the scope for extension of price competition is limited and therefore margins are likely to improve going forward. However given near term impact on margins we lower our EPS estimates by 6% for FY19E. We expect earnings to grow by 20% CAGR over FY18-20E. Valuations The impact seen on earnings in Q4FY18 is not likely to continue going forward since there is limited scope for further absorption of fuel cost and we expect rationalisation of ticket prices leading to improvement in margins. Considering Indigo s fuel efficient fleets, market leadership position, aggressive capacity addition and healthy balance sheet, we continue to maintain our positive view on the stock. We lower P/E multiple valuation to 17x (20x earlier FY19E) given near impact on margins while we roll forward to FY20E, with target price of Rs1,438 and maintain to BUY. Company Data Market Cap (cr) Rs. 45,425 Enterprise Value (cr) Rs. 54,208 Outstanding Shares (cr) 38.4 Free Float 25.1% Dividend Yield 2.8% 52 week high Rs. 1,520 52 week low Rs. 1,005 6m average volume (cr) 0.1 Beta 0.8 Face value Rs. 10.0 Shareholding (%) Q2FY17 Q3FY18 Q4FY18 Promoters 77.9 74.9 74.9 FII s 10.9 11.3 12.6 MFs/Insti 6.3 8.1 7.5 Public 2.5 2.5 2.6 Others 2.4 3.2 2.4 Total 100.0 100.0 100.0 Price Performance 3 Months 6 Months 1 Year Absolute Return 2.4% -3.8% 8.1% Absolute Sensex 0.1% 4.2% 17.4% Relative Return* 2.3% -8.0% -9.4% *over or under performance to benchmark index 1600 1500 1400 1300 1200 1100 1000 Standalone (Rs. Cr) FY18A FY19E FY20E Sales 23,021 29,133 35,445 Growth (%) 23.9 26.5 21.7 EBITDA 2,957 3,438 4,346 Margin (%) 12.8 11.8 12.3 PAT Adjusted 2,242 2,585 3,251 Growth (%) 35.1 15.3 25.8 Adj.EPS 58.3 67.3 84.6 Growth (%) 35.1 15.3 25.8 P/E 20.3 17.6 14.0 P/B 6.5 5.4 4.4 EV/EBITDA 18.3 16.3 13.2 ROE (%) 41.3 33.3 34.4 D/E 1.3 1.3 1.2 Anil R Analyst Indigo Sensex Rebased Apr 17 Jul 17 Oct 17 Jan 18 Apr 18
Quarterly Financials Profit & Loss Account (Rscr) Q4FY18 Q4FY17 YoY Growth % Q3FY18 QoQ Growth % Sales 5,799 4,848 19.6 6,178 (6.1) EBITDA 130 508 (74.4) 992 (87.0) EBITDA margins 2.2 10.5 (830bps) 16.0 (1380bps) Depreciation 129 105 22.3 107 19.8 EBIT 1 403 (99.9) 884 (99.7) Interest 93 78 19.4 84 9.8 Other Income 258 294 (12.3) 272 (5.2) PBT 166 619 (73.1) 1,072 (84.5) Tax* 49 179 (72.8) 310 (84.3) Exceptional Reported PAT 118 440 (73.3) 762 (84.6) Adjustments Adjusted PAT 118 440 (73.3) 762 (84.6) No. of shares (cr) 38.4 38.4 38.4 EPS (Rs) 3.1 11.4 (73.3) 19.8 (84.6) Change in estimates Old estimates New estimates Change % Year / Rscr FY19E FY19E FY20E FY19E FY20E Revenue 29,206 29,133 35,445 (0.3) - EBITDA 3,585 3,438 4,346 (4.1) - Margins (%) 12.3 11.8 12.3 50bps - PAT 2,738 2,585 3,251 (5.6) - EPS 71.3 67.3 84.6 (5.6) -
Standalone Financials Profit & Loss Account Sales 16,140 18,581 23,021 29,133 35,445 % change 15.9 15.1 23.9 26.5 21.7 EBITDA 3,118 2,143 2,957 3,438 4,346 % change 66.8 (31.3) 37.9 16.3 26.4 Depreciation 494 440 437 558 666 EBIT 2,613 1,686 2,520 2,880 3,680 Interest 304 331 340 310 290 Other Income 515 789 947 1,072 1,189 PBT 2,824 2,144 3,127 3,641 4,579 % change 52.9 (24.1) 45.8 16.5 25.8 Tax 837 485 884 1,056 1,328 Tax Rate (%) 29.7 22.6 28.3 29.0 29.0 Reported PAT 1,985 1,657 2,243 2,585 3,251 Adj* (12.7) (21.7) 2.5 - - Adj PAT 1,986 1,659 2,242 2,585 3,251 % change 52.3 (16.5) 35.1 15.3 25.8 No. of shares (cr) 36.0 38.4 38.4 38.4 38.4 Adj EPS (Rs) 51.7 43.2 58.3 67.3 84.6 % change 52.3 (16.5) 35.1 15.3 25.8 DPS (Rs) 51.6 32.0 32.0 32.0 32.0 CEPS (Rs) 69.1 55.1 69.7 81.8 101.9 Balance Sheet Cash 805 153 671 273 244 Accounts Receivable 157 159 226 287 350 Inventories 76 163 183 240 289 Other Cur. Assets 5,814 7,202 9,904 11,525 14,023 Investments 986 3,713 6,344 7,844 9,344 Gross Fixed Assets 5,305 4,597 5,597 6,797 7,997 Net Fixed Assets 4,727 3,747 4,535 4,953 5,487 CWIP 24 23 29 25 30 Intangible Assets 28 48 47 46 46 Def. Tax (Net) (147) (162) (370) (479) (616) Other Assets - - - - - Total Assets 12,472 15,048 20,760 24,716 29,196 Current Liabilities 2,639 3,262 3,916 5,095 6,120 Provisions 152 234 313 383 466 Debt Funds 6,958 7,773 9,454 10,804 12,154 Other Liabilities - - - - - Equity Capital 360 361 384 384 384 Reserves & Surplus 2,363 3,418 6,963 8,049 10,072 Shareholder s Fund 2,723 3,779 7,077 8,434 10,456 Total Liabilities 12,472 15,048 20,760 24,716 29,196 BVPS (Rs) 76 98 184 219 272 Cash flow Net inc. + Depn. 2,492 2,116 2,680 3,143 3,917 Non-cash adj. 158 (654) (392) (652) (762) Changes in W.C 308 2,113 (1,246) (1,300) (1,500) C.F.O 3,116 3,782 1,041 1,191 1,655 Capital exp. (248) 376 (1,004) (1,196) (1,205) Change in inv. (1,423) (3,760) (2,631) (1,500) (1,500) Other invest.cf 329 346 947 1072 1,189 C.F - investing (1,343) (3,038) (2,688) (1,624) (1,516) Issue of equity 1,214-2,554 (2,770) - Issue/repay debt (1,024) (685) 1681 1,350 1350 Dividends paid (1,103) (542) (1,229) (1,229) (1,229) Other finance.cf (307) (175) (340) (310) (290) C.F - Financing (1,220) (1,401) 2,666 (466) (169) Chg. in cash 559 (652) 1019 (899) (29) Closing cash 805 153 1173 273 244 Ratios Y.E March FY16A FY17A FY18A FY19E FY20E Profitability. & Return EBITDA margin (%) 19.3 11.5 12.8 11.8 12.3 EBIT margin (%) 16.2 9.1 10.9 9.9 10.4 Net profit margin(%) 12.3 8.9 9.7 8.9 9.2 ROE (%) 113.4 51.0 41.3 33.3 34.4 ROCE (%) 19.3 14.4 14.5 12.0 12.5 W.C & Liquidity Receivables (days) 3.0 3.1 3.1 3.2 3.3 Inventory (days) 4.2 4.6 5.5 5.1 5.3 Payables (days) 122.9 112.3 114.0 108.8 112.7 Current ratio (x) 2.5 2.2 2.4 2.3 2.3 Quick ratio (x) 0.3 0.0 0.2 0.1 0.1 Turnover &Leverage Gross asset T.O (x) 3.2 3.8 4.5 4.7 4.8 Total asset T.O (x) 1.4 1.4 1.3 1.3 1.3 Int. coverage. ratio (x) 8.6 5.1 7.3 9.3 12.7 Adj. debt/equity (x) 2.6 2.1 1.3 1.3 1.2 Valuation ratios EV/Sales (x) 3.2 2.9 2.4 1.9 1.6 EV/EBITDA (x) 16.5 24.7 18.3 16.3 13.2 P/E (x) 22.9 27.4 20.3 17.6 14.0 P/BV (x) 15.8 12.2 6.5 5.4 4.4
Recommendation Summary (last 3 years) Dates Rating Target 22-November-2017 Buy 1426 1600 07-May-2018 Buy 1438 1400 1200 1000 800 600 400 200 Nov-15 May-16 Nov-16 May-17 Nov-17 May-18 Source: Bloomberg, Geojit Research Investment Rating Criteria Large Cap Stocks; Buy - Upside is above 10%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable Mid Cap and Small Cap; Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 10%. Reduce/Sell - Downside is more than0%. Neutral - Not Applicable To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review. General Disclosures and Disclaimers CERTIFICATION I, Anil R, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of GeojitFinancial Services Limited, hereinafter referred to as Geojit. COMPANY OVERVIEW Geojit Financial Services Limited (hereinafter Geojit), a publically listed company, is engaged in services of retail broking, depository services, portfolio management and marketing investment products including mutual funds, insurance and properties. Geojit is a SEBI registered Research Entity and as such prepares and shares research data and reports periodically with clients, investors, stake holders and general public in compliance with Securities and Exchange Board of India Act, 1992, Securities And Exchange Board Of India (Research Analysts) Regulations, 2014 and/or any other applicable directives, instructions or guidelines issued by the Regulators from time to time. DISTRIBUTION OF REPORTS This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Geojit will not treat the recipients of this report as clients by virtue of their receiving this report. GENERAL REPRESENTATION The research reports do not constitute an offer or solicitation for the purchase or sale of any financial instruments, inducements, promise, guarantee, warranty, or as an official confirmation of any transaction or contractual obligations of any kind. This report is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. We have also reviewed the research report for any untrue statements of material facts or any false or misleading information. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. RISK DISCLOSURE Geojit and/or its Affiliates and its officers, directors and employees including the analyst/authors shall not be in any way be responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Investors may lose his/her entire investment under certain market conditions so before acting on any advice or recommendation in these material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. This report does not take into account the specific investment objectives, financial situation/circumstances and the particular needs of any specific person who may receive this document. The user assumes the entire risk of any use made of this information. Each recipient of this report should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this report (including the merits and risks involved). The price, volume and income of the investments referred to in this report may fluctuate and investors may realize losses that may exceed their original capital.
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