October 28, 2024 — Shares of InterGlobe Aviation, the parent company of IndiGo, witnessed a sharp decline of over 13% in early trade on Monday, October 28, following the release of its weak Q2FY25 financial results. The stock opened at ₹4,108.80 and plummeted to ₹3,778.50 during the session, causing significant concern among investors.

However, by 10 a.m., IndiGo shares had recovered slightly, trading 8.42% lower at ₹3,996.95.

Q2FY25 Financial Performance

IndiGo reported a consolidated net loss of ₹986.7 crore for the quarter ending September 2024, a drastic reversal from the net profit of ₹188.9 crore it recorded in the same period last year (Q2FY24). The company attributed the losses primarily to a surge in fuel expenses and a record number of aircraft groundings. Despite the setback, IndiGo noted that the number of groundings has started to decline.

At the operational level, IndiGo’s earnings before interest, tax, depreciation, amortisation, and rent (EBITDAR) came in at ₹2,434 crore, slightly lower than the ₹2,446.5 crore in the year-ago period.

Brokerage Downgrades Following Poor Results

Several brokerage firms, including Nuvama Wealth Management, responded to IndiGo’s Q2 performance by downgrading their ratings on the stock. Nuvama downgraded IndiGo to a 'hold' rating, reducing its FY25E and FY26E EBITDAR estimates by 14% and 7%, respectively. The brokerage has revised its target price to ₹4,415, down 17% from its previous forecast.

Nuvama highlighted several concerns, including the company’s premium valuation compared to global peers, slowing domestic demand, and risks associated with IndiGo's shift from a low-cost carrier (LCC) model to a hybrid one. The firm also raised concerns about IndiGo’s declining domestic market share and continued selling by promoters.

Challenges Ahead for IndiGo

Nuvama also pointed out that IndiGo faces headwinds in the near term, as capacity growth appears to be outpacing demand growth, putting pressure on revenue per available seat kilometre (PRASK). While some positive factors may balance the risk, the current valuations remain a concern. The brokerage firm lowered its EV/EBITDAR multiple from 9x to 8x and revised its valuation outlook through September 2026.

Conclusion

IndiGo’s disappointing Q2FY25 results, coupled with rising fuel costs and operational challenges, have raised concerns among investors and analysts alike. As the company navigates these difficulties, including managing overcapacity and adapting to its new hybrid business model, the stock remains under pressure in the short term.

Investors will likely keep a close eye on the company’s future performance as it seeks to mitigate its current challenges and return to profitability.