Aviation

Apr-Jun'21 Earnings Preview

July 7, 2021 Covid wave induced turbulence to widen losses
Demand environment collapsed in 1Q, as Covid second wave delayed
industry’s recovery flight by 6-8 months. May month saw average daily flights
PL Universe nosedive to 30%-35% of pre-covid levels, while pax per flight dipped to 73
(last seen in May20). With dent in consumer confidence, we expect yields to
Companies Rating CMP (Rs) TP (Rs)
remain under pressure. In addition to this, rising input cost environment (ATF

InterGlobe Aviation Hold 1,769 1,670

up 11% QoQ; Rupee depreciation of 1.2% QoQ) is likely to stretch industry
SpiceJet Hold 79 85 finances, in our view. We expect LCCs under our coverage i.e. INDIGO/ SJET
to report 4.4x/ 2.6x YoY increase in sales on a lower base (down 46%/ 29%
Source: PL
QoQ) and an adj. loss of Rs24.3bn/Rs6.5bn respectively. We continue to
prefer INDIGO on the back of 1) its relative balance sheet strength, 2) lowest
cost structure and 3) management strength.

 2nd Covid wave pegs industry recovery back by 6-8 months: Post
resumption of operations in late May20, industry made a smart recovery and
operated at ~75%-80% of pre-covid capacity with 75% load factors. However,
post that demand environment collapsed due to 2nd Covid wave and ensuing
lockdowns/ restrictions. May month saw average daily flights nosedive to 30%-
35% of pre-covid levels, thereby pegging the industry back by 6-8 months in
its recovery flight. Pax per flight too reduced from a peak of 120 in Feb21 to 73
(last seen in May20). We expect INDIGO /SJET 1Q22 capacity to decline
sequentially by 39%/ 37%.

 Losses to widen QoQ: We expect losses for the industry to widen sequentially
given 1) sharp dip in operating levels due to 2nd covid wave 2) dent in consumer
confidence impacting load factors & unit revenues and 3) 11%QoQ rise in ATF
prices. With Rupee depreciating by c. Rs0.94 over 31th Mar closing, MTM loss
on liabilities will add to losses (INDIGO/SJET – Rs3.3bn/ Rs1.1bn). We expect,
INDIGO/ SJET each to report sequential dip in PLFs to 61%/ 69.5%. Yields are
likely to remain under pressure. We expect INDIGO’s loss to widen sequentially
from Rs11.6bn to Rs24.3bn. Whereas, adjusting for the Boeing compensation
(Rs1.4bn), SJET loss to widen QoQ from Rs3.8bn to Rs6.5bn.

 Rising input cost inflation to put further pressure on industry finances:

With declining Covid-19 cases and rising vaccination counts, traffic is swiftly
coming back with June witnessing 45% of pre-covid departures so far.
Although we expect recovery to pick up pace and reach Feb21 levels by end
of CY2021, rising input cost inflation remains a near term headwind which
could further stretch finances of the industry.

 INDIGO: We believe, INDIGO continues to remain better placed than its peers
and is likely to emerge stronger from current crisis given 1) strengthening of
balance sheet post Rs30bn QIP (Mar21: Rs185bn cash & equivalents (Rs71bn
in free cash) 2) industry leading cost structure (to improve further after
Paarth Gala replacing older A320ceos with A320neo family) and 3) strong management
paarthgala@plindia.com | 91-22-66322242
team. Retain HOLD.

July 7, 2021 1
 Aviation

Avg daily flights/ pax fell to 30%/ 16% of pre-covid levels in May; operations recover with falling Covid cases
Particulars May20 Jun20 Jul20 Aug20 Sep20 Oct20 Nov20 Dec20 Jan21 Feb21 Mar21 Apr21 May21 Jun21 Jul21
Avg daily flights 123 746 799 930 1,321 1,585 1,804 2,065 2,190 2,573 2,464 2,068 911 1,070 1,407
vs LY % -96% -74% -72% -67% -54% -48% -41% -33% -29% -18% 10% NA 67% 43% 76%
vs Feb20 % -96% -76% -75% -70% -58% -49% -42% -34% -30% -18% -21% -34% -71% -66% -55%
Avg daily Pax (‘000) 9.0 66.0 67.8 91.2 131.3 170.0 211.4 235.7 248.5 311.8 268.5 194.7 66.4 101.2 152.7
vs LY % -98% -83% -82% -76% -66% -57% -51% -44% -40% -27% 8% NA 67% 53% 125%
vs Feb20 % -98% -84% -84% -79% -69% -60% -50% -45% -42% -27% -37% -54% -84% -76% -64%
No of Pax / flight 73 88 85 98 99 107 117 114 113 121 109 94 73 95 109
Source: Company, PL *till 5th July

ATF prices were up by 97.5% YoY/ 11% QoQ Rupee depreciated by 1.2% QoQ

Aviation Turbine Fuel (Rs/ltr) 78.0 USD/ INR

76.0 74.4
74
80 67 70 66 64 65 63 74.0
61 63
70 56 72.0
60 73.0
44 45 70.0
50
32 68.0
40
30 66.0
20 64.0
10 62.0
- 60.0
Q1FY19
Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20
Q4FY20
Q1FY21
Q2FY21

Q3FY21

Q4FY21
Q1FY22

Jun-17

Jun-18

Jun-19

Jun-20

Jun-21
Mar-18

Mar-19

Mar-20

Mar-21
Dec-17

Dec-18

Dec-19

Dec-20
Sep-17

Sep-18

Sep-19

Sep-20
Source: Company, PL Source: Company, PL

Q1FY22 Result Preview

YoY gr. QoQ gr.
Company Name Q1FY22E Q1FY21 Q4FY21 Remark
(%) (%)
Sales 33,522 7,667 337.2 62,229 (46.1)
We expect IndiGo to report ~39% QoQ decline in ASK. We
EBITDAR -8,832 -15,443 NA 6,156 NA
expect IndiGo to widen losses QoQ given 1) 11% increase
InterGlobe
Margin (%) -26.3 -201.4 9.9 in ATF prices and 2) pressure on unit revenues due to
Aviation
declining PLFs and yield owing to second wave of Covid19.
PBT -24,312 -28,494 NA -11,590 NA
MTM loss of Rs3.2bn
Adj. PAT -24,312 -28,494 NA -11,590 NA
Sales 13,304 5,147 158.5 18,771 (29.1)
We expect SJET to report 37% QoQ decline in ASK. We
EBITDAR -1,460 -1,709 NA 440 NA expect SJET to widen losses QoQ given 1)11% increase in
ATF prices and 2) pressure on unit revenues due to
SpiceJet Margin (%) -11.0 -33.2 2.3
declining PLFs and yield owing to second wave of Covid19.
PBT -6,488 -7,335 NA -3,765 NA Adj.PAT excludes Rs1.4bn compensation from Boeing.
MTM loss of Rs1.1bn
Adj. PAT -6,488 -7,335 NA -3,765 NA

Source: Company, PL

Q4FY21 Result Snapshot

Sales EBITDA PBT Adj. PAT
(Rs mn)
Q4FY21 YoY gr. QoQ gr. Q4FY21 YoY gr. QoQ gr. Q4FY21 YoY gr. QoQ gr. Q4FY21 YoY gr. QoQ gr.
INDIGO IN 62,229 -25.0% 26.7% 6,156 NA -31.8% -11,590 NA 85.0% -11,590 NA NA
SJET IN 18,771 -34.5% 11.3% 440 NA -85.9% -3,765 NA 90.8% -3,765 NA NA
Source: Company, PL

July 7, 2021 2
 Aviation

Management Commentary
Company Commentary

Witnessed steady recovery until end of Feb with peak PLFs of 85%. Expect similar levels not before 3QFY22. Operated at 30% of
pre-covid international capacity. Saw modest turnaround in traffic during last week of May which has sustained so far in June. With
reducing covid-19 trend and increasing vaccination nos, expect recovery to kick start July onwards. Daily Cash burn increased from
INDIGO IN
Rs150mn in 3Q to Rs190mn in 4Q. Likely to further worsen in 1QFY22. In FY22 will generate Rs45bn additional liquidity by tapping
into credit lines and SLBs. FY21 cargo revenues are up 10%. To induct 4 A321 freighters, delivery of 1st aircraft in early 2022.
A320ceo retirement to pick up pace this year. To return all CEOs by Dec 2022. Total fleet count to remain stable over next 2 years.

Cargo revenues grew by 1.4x QoQ to Rs4.2bn, margins at 9.7%. In order to improve its liquidity position, SJET is looking to raise
SJET IN fresh capital up to Rs25bn via QIP. Also, with an aim of providing greater focus to cargo business and raise additional capital, SJET
is looking to hive off cargo business and operate it as a separate entity

July 7, 2021 3
 Aviation

Valuation Summary

CMP TP MCap Sales (Rs bn) EBITDA (Rs bn) PAT (Rs bn) EPS (Rs) RoE (%) PE (x)
Company Names S/C Rating
(Rs) (Rs) (Rs bn) FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E FY20 FY21 FY22E FY23E
InterGlobe Aviation S Hold 1,769 1,670 680.8 357.6 146.4 201.4 381.5 45.3 2.6 10.1 97.6 -2.5 -58.3 -54.6 27.0 -6.4 -151.5 -142.0 70.1 -3.9 -196.5 205.3 -66.8 -274.2 -11.7 -12.5 25.2
SpiceJet S Hold 79 85 47.6 123.6 52.7 67.3 127.1 8.6 5.6 4.5 21.9 -16.1 -14.2 -14.7 2.9 -26.8 -23.7 -24.5 4.9 166.5 68.5 44.5 -7.5 -3.0 -3.3 -3.2 16.3
Source: Company, PL S=Standalone / C=Consolidated

Change in Estimates
Sales PAT EPS
Rating Target Price
FY22 FY23 FY22 FY23 FY22 FY23
% % % % % %
C P C P C P C P C P C P % Chng. C P C P
Chng. Chng. Chng. Chng. Chng. Chng.
InterGlobe Aviation Hold Hold 1,670 1,670 0.0% 2,01,408 2,01,408 0.0% 3,81,460 3,81,460 0.0% -54,644 -54,644 0.0% 26,998 26,998 0.0% -142.0 -142.0 0.0% 70.1 70.1 0.0%
SpiceJet Hold Hold 85 85 0.0% 67,331 67,331 0.0% 1,27,132 1,27,132 0.0% -14,718 -14,718 0.0% 2,927 2,927 0.0% -24.5 -24.5 0.0% 4.9 4.9 0.0%
Source: Company, PL C=Current / P=Previous / Acc=Accumulate

July 7, 2021 4
 Aviation
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 InterGlobe Aviation Hold 1,670 1,755
2 KEI Industries BUY 825 721
3 Polycab India BUY 1,927 1,980
4 SpiceJet BUY 120 72

PL’s Recommendation Nomenclature

Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly

July 7, 2021 5
 Aviation

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