IndiGo's 500-plane order shows it is committed on market dominance, say experts

Operator of India's largest airline, IndiGo, placed record ordrer of 500 planes with Airbus on Monday at the Paris Airshow. Analysts say that the order placed by InterGlobe Aviation, the parent of IndiGo, shows that it is bullish on growth of Indian aviation market and it will maintain its dominance on Indian skies going ahead.

"Currently IndiGo operates around 304 aircraft and has a previous order of 480 aircraft to be delivered during FY2024-30. This incremental order sums up to 1,000 aircraft to be delivered to IndiGo by CY35. This order book comprises a mix of A320NEO, A321NEO and A321XLR aircraft," brokerage firm Motilal Oswal said in a note to its clients.

The A320NEO Family aircraft would also help IndiGo lower its operating costs and deliver fuel efficiency with high standards of reliability. It would also help with its sustainability goals, with the company already having realised CO2 reduction of 21 per cent in FY16-23.

The order by IndiGo surpassed February order of Air India when it ordered 470 jets from Airbus (250) and Boeing (220). Air India would lease another 25 jets, bringing the total to near 500. The Tata group-owned airline vies with IndiGo to serve the largest population in the world.

The order by IndiGo, which dominates Indian skies with market share of over 60 per cent, indicates that it is bullish on Indian economy and it will maintain its dominance going ahead, analysts said.

"The last jet will come in 2035. It is a good order and shows demand for aviation will grow and its confidence of strength in the Indan economy. The company will have a fleet of 1,000 aircraft and with 61 per cent market share it is indicating that they will maintain the market share," AK Prabhakar, head of research at IDBI Capital told Republic.

Prabhakar added tha the company will not face any issues with regards to funding the deal as it has cash on the balance sheet.

Indigo reported consecutive quarters of profit in Q4FY23 and performed well on unit metrics and passengers, noted brokerage firm Emkay. 

Passenger volume rose 5 per cent sequentially, despite fourth quarter being a lean quarter, while yields at Rs 4.85 reported a 3 per cent beat. Management has maintained its key FY24 guidance, with aircraft on ground (AOG) continuing in the 35-40 range, Emkay said.

“However, we believe targets would be beaten, given peer issues amid strong air traffic recovery. Management stated yields and passenger load factor (PLF) would likely increase QoQ in Q1FY24. We raise our FY24 and 25 earnings profit after tax by 40 per cent and 16 per cent respectively, factoring in better spreads and volumes. We also build inconservative fuel prices, that can surprise positively,” Emkay added. 

The brokerage has buy call on stock for target price of Rs 2,700 per share.