INDIGO has delivered a strong 9M-24 beating its capacity growth guidance for FY24. 20% growth expected in FY24. It is available at an attractive free cash flow yield.
1. 7th largest airline in the world
Nearly 2/3rd of domestic market share in Aug-23
2. FY19-23: Making losses since the last 4 years
Expected to make a profit in FY24 after 4 years
3. FY23: Strong recovery since Q3-23, operational & financial
A year of recovery and growth as the demand remained robust, and we continued to serve the lion-share of this demand. Our revenues for the financial year 2023 more than doubled as compared to last year and we also reported the highest ever annual revenues of 558.8 billion rupees.
4. H1-24: Back to profits and revenue up 25% YoY
we have completed a full cycle and remained profitable for the last four quarters.
5. Strong Q3-24: PAT up 111% and revenue up 30% YoY
PAT up 1487% and revenue up 29% QoQ
6. Strong 9M-24: Back to profits and revenue up 27% YoY
7. Business metrics: Generating free cash flow
As of 31st December 2023: IndiGo had a total cash balance of INR 324,280 million comprising INR 191,996 million of free cash and INR 132,285 million of restricted cash.
Sustainability of the business not in question even after 4 years of losses as its cash reserves at the end of FY23 were 42% of FY23 revenue.
Free cash flow (FCF) is the money a company has left over after paying its operating expenses (OpEx) and capital expenditures (CapEx). The more free cash flow a company has, the more it can allocate to dividends, paying down debt, and growth opportunities.
6. Outlook: Beating FY24 guidance
Moving on to the fourth quarter, based on our current estimates and with the numerous mitigation measures in place, we are expecting around 12 percent capacity growth in the fourth quarter on a year-over-year basis.
With this, we will be exceeding our original guidance for the fiscal year 2024 which was north of mid-teens capacity growth and will deliver a growth of more than 20% as compared to fiscal year 2023.
7. Revenue up 27% in 9M-24 and back into profits at a PE of 17
8. So Wait and Watch
If I hold the stock then one may continue holding on to INDIGO
Coverage of INDIGO was initiated after Q1-24 results. The investment thesis has not changed after a strong Q3-24. The only changes are the delivery of a strong 9M-24 and the increased confidence in the management to deliver a stronger FY24. INDIGO has delivered in 9M-24 in line with the guidance for FY24
Outlook for Q4-24 looks strong given the guidance for 12% YoY capacity addition
On can wait for the outlook for FY25 given the performance in 9M-23
For the next fiscal year 2025, we are currently assessing our growth targets and will communicate the capacity guidance at a later stage.
9. Or, join the ride
If I am looking to enter INDIGO then
27% revenue growth and back into profits in 9M-24 at a PE of 17 makes valuations look quite reasonable.
For H1-24. INDIGO generated Rs 10,069 cr of free cash flow and is available for a market cap of Rs 120,699 cr. Its free cash flow yield of 8.3% (not annualized) makes the valuations look very attractive.
Of the Rs 120,699 cr market cap of INDIGO, Rs 19,199.6 cr is in free cash. This implies that 16% of the market cap is in cash which provides a margin of safety to the valuations.
Our liquidity continues to remain robust as we ended the December quarter with free cash of 192 billion rupees, a net increase of 11.2 billion rupees as compared to the September quarter end.