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Interglobe Aviation, the parent company of IndiGo, lost ground in trade after a steady start. The stock hit a high of Rs 1,443 on the NSE before slipping to around 1,400 levels in intraday trade.

By comparison, the Nifty50 index gained 0.6 per cent to 10,754 levels.The weakness in the stock, analysts say, is a knee-jerk reaction to the news of its president, Aditya Ghosh, unexpectedly quitting on Friday. They believe the slide mostly factors in the development and stability – at last from a short-term perspective – should return once a successor is named. Surprisingly the stock, as if anticipating the move, had lost over 6 per cent in trade ahead of the announcement on Friday.

“The change in management will have a limited impact on the stock. Once someone is appointed in Mr Ghosh’s place, the move will lend some stability to the counter,” says A K Prabhakar, head of research at IDBI Capital.

Over the past one year, Interglobe Aviation has outperformed its peers and rallied nearly 27 per cent as compared to 20 per cent rise in Jet Airways and a 15 per cent up move in the Nifty50. On a calendar year-to-date basis too, Interglobe Aviation has gained nearly 17 per cent, as compared to 25 per cent fall in Jet Airways. Nifty50, during this period, rose around 1.5 per cent.

“One individual exiting the company will not have any material impact on the company. We remain positive on the stock and suggest investors use this opportunity to buy the stock from a long-term perspective,” says Gaurang Shah, head investment strategist at Geojit Financial Services.

IndiGo, analysts say, has been benefiting from a steady increase its market share despite operating in a competitive industry amid a rise in domestic air passenger traffic.

According to a recent report by Motilal Oswal Research, the passenger growth for the aviation sector has been in double digits since the last 44 months. Domestic air passengers in India grew 28.2 per cent year-on-year (y-o-y) to 11.5 million in March 2018 and 24 per cent year-on-year in the January - March 2018 quarter (4QFY18), it says. During March 2018, IndiGo’s passengers grew 26.7 per cent (y-o-y) in March 2018 and 24 per cent (y-o-y) in 4QFY18.

All this helped IndiGo boost its market share. IndiGo’s passenger market share stood at 39.6 per cent in March 2018 and 39.8 per cent in 4QFY18 (versus 39.6 per cent in 3QFY18), the Motilal Oswal report suggests.Despite the above positives, analysts remain cautious on the sector. A sharp run up in their stocks prices since the past year and the outlook for crude oil prices remain a concern, they say.

“The road ahead for aviation stocks depends on how crude oil prices play out. If oil prices start to move above $75 a barrel (average for one quarter), the financial performance of all airlines will come under pressure going ahead. Investors can buy if the stock corrects around 10 per cent from the current levels,” Prabhakar adds.

For Q4FY18, analysts expect Interglobe Aviation to report a subdued performance, as a part of its fleet was grounded during the quarter due to safety concerns. Of 14 planes grounded (now back in operation), 11 were of IndiGo and three of the Wadia group-promoted GoAir.

"We expect subdued quarter as grounding of planes will result in loss of market share and higher cost owing to expensive short-term lease," say analysts at Edelweiss in a report. They peg the revenues at Rs 59,653 million (up 23 per cent y-o-y), core profit after tax at Rs 3,771 (down 14.4 per cent y-o-y) and EBITDAR of Rs 14,927 million (up 12 per cent y-o-y).

Last modified on Monday, 30 April 2018

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