Target: ₹3,000
CMP: ₹2,390.50
The Pratt & Whitney engine issues have aggravated, with parent company RTX Corporation expecting over 3,000 engine recalls for inspection (vs. earlier est. of over 1,200 engines).
We estimate incremental impact on Indigo, under a worst-case scenario, to be 20-25 more aircraft on ground (AOG) at a time, on an average, for the next 3-4 years, from about 40 as of end of Jun-23. This implies about 20 per cent total AOG on Indigo’s current fleet size.
As per media reports, Indigo plans to add 20 A320ceos on damp lease in view of the upcoming peak travel season. We estimate damp lease margins to be around 10 per cent lower vs. dry lease, although blended impact on net earnings is likely to be moderate at 6-7 per cent.
Indigo remains best-placed among peers to tackle the current challenges of engine issues and rising fuel prices. The upcoming travel season, as per our checks, is looking strong and expected yield recovery should offset cost pressures.
Indigo remains well-poised to capture strong air traffic growth in India (12 per cent CAGR over FY24-30), through maximisation of destination-route mix as well as capacity additions. Indigo has a strong outstanding order book of over 980 aircraft (incl. the recently placed order for 500 aircraft) with Airbus and a target to double its fleet size by CY30.