Emkay Global Financial Assigns Buy Rating to InterGlobe Aviation, Targets Rs 5500
Emkay Global Financial Lowers Earnings Estimates for InterGlobe Aviation Amid Ongoing Middle East Conflict
The recent Middle East conflict has led to significant changes in the aviation industry, particularly for InterGlobe Aviation, the parent company of Indian low-cost carrier IndiGo. Following the conflict's start, the first ATF (Aviation Turbine Fuel) price revision saw oil marketing companies (OMCs) hiking domestic and international rates by 115% and 107% month-on-month, respectively, to Rs207 and USD1.7 per liter. In response, the government announced a domestic scheduled airlines' rate revision of approximately 25% to Rs105 per liter, aiming to shield domestic air travelers from high fares. International fares, however, remained unchanged.
The OMCs have taken a significant hit, as the oil price spike to over USD100 per barrel and the currency weakening to Rs93-94 per USD alone necessitated a 35% increase, assuming no change in refining cracks. Following this, IndiGo has revised its fuel surcharge rates, effective from April 2, 2026. Domestic fares now range from Rs275 to Rs950 for distances covering 0-500km to over 2,000km, with an average likely to be similar to the 14th March rate of approximately Rs400. International fuel surcharge has been hiked materially, from Rs425-2,300 for the South Asia-Europe route to Rs900-10,000.
Based on IndiGo's average stage length, we estimate a ~20% rise in the base fare/RASK (Revenue per Available Seat Kilometer) versus a 50% rise in blended fuel cost. This can lead to improved PBT (Profit Before Tax) spreads from pre-conflict levels, potentially offsetting the slowdown in passenger volumes and RPK (Revenue Passenger Kilometers) deployment in the conflict-hit Gulf region (13-14% of ASK).
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Earnings Visibility and Outlook
Amid ongoing macro volatility, earnings visibility remains low. We have cut FY26/27/28E EPS (Earnings Per Share) by 13%/28%/7% and reduced our TP (Target Price) by 13% to Rs5,500 from Rs6,300, valuing the airline at 20x March 2028E EPS.
Comparison of Fuel Price Hikes
| OMC Domestic Rate Increase | OMC International Rate Increase | IndiGo Fuel Surcharge Rate Increase |
|---|---|---|
| 115% (Rs207 per liter) | 107% (USD1.7 per liter) | 25% (Rs105 per liter) for domestic fares |
| Material increase for international fares |
Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline
Investor Takeaway
Investors should monitor the impact of fuel price revisions on airline stocks.
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