Back InterGlobe Aviation share price falls 5% after Q1 results; what should investors do?

On Thursday, the share price of InterGlobe Aviation (IndiGo) experienced a significant decline of over 5 per cent in morning trade on the Bombay Stock Exchange (BSE). This sharp drop in the share price came just a day after the company had announced its financial results for the June quarter of the current financial year, Q1FY24.

Interestingly, despite the recent share price decline, the company had reported record-breaking quarterly profits for the mentioned quarter. This means that IndiGo achieved unprecedented financial performance during Q1FY24, which should typically lead to positive investor sentiment and potentially result in a rise in the share price.

However, the apparent contradiction between strong financial performance and a drop in share price may be attributed to various factors. Market sentiments and investor perception can be influenced by a wide range of factors, including macroeconomic conditions, industry trends, global events, and competitor performance.

One possible reason for the share price fall could be profit-taking by some investors. After a company announces strong earnings results, some shareholders might choose to sell their shares to lock in profits, causing a temporary decline in the share price.

Furthermore, other news or developments related to the aviation industry or IndiGo specifically might have impacted investor confidence negatively, leading to the decline in share price. It is essential to consider the broader market context and any specific events or announcements that occurred around the same time to understand the full picture behind the share price movement.

As with any investment, the share price of a company can be subject to fluctuations based on market dynamics and investor sentiments. Investors should carefully assess all available information and conduct thorough research before making any investment decisions.

As per the data, the stock traded 3.58 per cent lower at ₹2,474 around 10:40 am on the Bombay Stock Exchange (BSE). This information shows the extent of the decline in the share price after the announcement of the impressive Q1FY24 results, which included a significant rise in net profit.

In the quarter ended 30 June, IndiGo reported a remarkable turnaround in its financial performance. The company’s net profit surged to ₹3,090.6 crore, a stark contrast from the loss of ₹1,064.3 crore it had incurred in the same quarter the previous year. This notable improvement in profitability indicates successful efforts by the company to strengthen its operations and financial position.

Furthermore, IndiGo’s total income also exhibited a healthy growth of 32 per cent, reaching ₹17,161 crore compared to the income from the corresponding period in the previous year. This increase in total income reflects a boost in revenue generation for the airline, likely attributed to factors such as increased passenger traffic, cost management strategies, and operational efficiency.

Despite such impressive financial results, it’s important to recognize that share prices are influenced by numerous factors, including market sentiment, investor perceptions, overall economic conditions, and industry-specific developments. The 3.58 per cent decline in share price might have been driven by profit-taking or concerns related to the company’s future outlook.

Investors should carefully analyze all relevant information, including the company’s financial performance, management statements, industry trends, and any other relevant news before making investment decisions. Additionally, stock prices can be volatile in the short term, and the performance of a company’s stock may not always align with its financial results.

In the reported quarter, IndiGo’s total expenditure witnessed a slight decline of 0.1 per cent, reaching ₹14,070 crore compared to the previous year. The company achieved a significant reduction of 13 per cent in fuel expenses, amounting to ₹5,228 crore. However, non-fuel expenses saw a notable increase of more than 9 per cent, reaching ₹8,842 crore during the same quarter.

In the reported quarter, IndiGo’s total expenditure witnessed a slight decline of 0.1 per cent, reaching ₹14,070 crore compared to the previous year. The company achieved a significant reduction of 13 per cent in fuel expenses, amounting to ₹5,228 crore. However, non-fuel expenses saw a notable increase of more than 9 per cent, reaching ₹8,842 crore during the same quarter.

Brokerage firm JM Financial has expressed cautiousness regarding the outlook for IndiGo’s stock. They have assigned a ‘hold’ recommendation on the stock with a target price of ₹2,270. The firm believes that the impending stake sale by Rakesh Gangwal, one of the co-founders of IndiGo, will continue to exert downward pressure on the stock’s performance.

Furthermore, JM Financial expects IndiGo’s profitability in Q2 to be adversely affected for several reasons. These include lower fares due to the seasonally weak quarter, higher Aviation Turbine Fuel (ATF) prices, and the absence of a foreign exchange gain of ₹110 crore that was recorded in the first quarter (Q1).

The brokerage firm stated that the competitive environment in the aviation industry is likely to intensify due to several factors. These include:

(a) SpiceJet receiving funds amounting to ₹500 crore through promoter infusion, which could strengthen its position in the market and lead to increased competition.

(b) The anticipated resumption of Go First’s operations after the Directorate General of Civil Aviation (DGCA) conditionally allowed the grounded airline to resume its services. This could further add to the competitive landscape.

(c) Jet Airways getting the Indian air operator’s permit from DGCA, signaling progress towards its revival. If Jet Airways re-enters the market, it could potentially heighten competition among airlines.

Additionally, the impending stake sale by Rakesh Gangwal, one of the co-founders of IndiGo, is expected to continue exerting pressure on the stock’s performance, contributing to the cautious sentiment towards the company’s stock.

According to Motilal Oswal Financial Services, they have a ‘neutral’ outlook on IndiGo’s stock with a target price of ₹2,630. The brokerage firm highlights that IndiGo is actively working to enhance its international presence by forging strategic partnerships and focusing on loyalty programs. Additionally, the company’s robust order book puts it in a favorable position to further expand its network within the domestic market.

However, the brokerage firm also points out that there are some challenges or “teething issues” that IndiGo is currently facing. These issues could be potential concerns for investors and might be influencing the ‘neutral’ stance on the stock.

As a ‘neutral’ view indicates, Motilal Oswal Financial Services sees a balanced outlook for the stock, implying that the positive and negative factors are approximately offsetting each other at the moment. Investors may want to closely monitor the company’s developments and performance to make informed decisions based on changing circumstances.

Motilal Oswal Financial Services noted that IndiGo is currently facing challenges in its operations. Specifically, around 40 aircraft have already been grounded due to engine failures, leading to the recall of P&W (Pratt & Whitney) engines for testing purposes. This situation has resulted in disruptions to the airline’s services, and there are indications that more planes may need to be grounded in phases to address the issues.

While the Indian aviation industry has a positive outlook and is experiencing strong demand, the brokerage firm believes that IndiGo still has several hurdles to overcome. These challenges are likely impacting the overall performance and creating uncertainties for the company’s future prospects. Consequently, the current situation for IndiGo is not considered to be an entirely perfect or smooth scenario.

As investors assess the company’s potential, it’s essential to take into account the existing challenges and how well IndiGo manages and resolves them. The stock’s performance could be influenced by how effectively the company addresses these issues and capitalizes on the opportunities in the evolving aviation market.