IndiGo Shares Gain On Positive Ratings Despite Q1 Net Loss

On Thursday, shares of InterGlobe Aviation sank 4 percent before gaining 3 percent over its previous closing price. It touched an intraday high of Rs 943.50 per share.

The aviation stock ends its two-day losing streak after its June-ended quarter results made analysts take a more positive stance on IndiGo airlines, considering its balance sheet and dominant market position.

On Wednesday, InterGlobe Aviation, which operates IndiGo Airlines, reported a net loss of Rs 2,844.3 crore for the June ended quarter when compared to a net profit of Rs 1,203.1 crore for the same period last year. Its revenue plunged by 91.9 percent year-on-year to Rs 766.7 crore from a year ago.

The low-cost carrier said it had a total cash balance at the end of 30 June 2020 was at Rs 18,449.8 crore comprising Rs 7,527.6 crore of free cash and Rs 10,922.2 crore of restricted cash. Cash management is of vital importance for the company as the aviation business is expected to take the longest to reach the optimal operational level or profitability.

In comparison, its cash and cash equivalents stood at Rs 17,337.1 crore at the end of June 2019.

Brokerage firm UBS has maintained its 'buy' rating on the stock with a price target of Rs 1,500 as it expects the airline to gain further market share due to its low-cost position, strong liquidity and higher customer satisfaction.

Motilal Oswal Financial Services has a 'neutral' call on the stock after the Q1 results with a target price of Rs 1,030. It believes that long-term demand and stability in the aviation sector remain key challenges for the stock and it is thus cautious.

Spark Capital maintains a positive stance on the stock as their analysts believe that its strong balance sheet demonstrates wherewithal to withstand the turbulent period.

On the other hand, Kotak Institutional Equities gave a 'sell' rating to the stock post the results, with a fair value price of Rs 900, due to uncertainty in the sector.

An additional factor that may have invoked a buying sentiment among investors for IndiGo is the red flags raised by auditors on its competitor SpiceJet. The auditor on Wednesday has expressed doubt on the airline's ability to continue as a going concern after two successive annual losses have eroded its net worth.