Motilal Oswal Favors Acquisition of InterGlobe Aviation, Sees Target Price at Rs 5600

Motilal Oswal Ups its Estimate for InterGlobe Aviation Following Q4 Results

InterGlobe Aviation, the parent company of IndiGo, reported a significant decline in EBITDAR to INR15 billion in the fourth quarter, primarily due to higher forex losses of approximately INR48.8 billion. However, the company's EBITDA, excluding forex losses, saw a relatively modest 5% year-over-year decline to INR56.3 billion. Despite the challenges posed by a volatile fourth quarter, which impacted air travel and resulted in muted Available Seat Kilometers (ASK) growth year-over-year, InterGlobe Aviation managed to control its costs better than expected.

As a result, the company significantly exceeded Motilal Oswal's EBITDA estimates (excluding forex loss) of INR48.7 billion. InterGlobe Aviation's guidance for a near-term ASK growth of approximately 3-4% year-over-year in the first quarter of FY27, which is driven by the gradual recovery of international operations and the redeployment of capacity towards domestic and new metro airports, is a positive development. The Passenger Revenue per Available Seat Kilometer (PRASK) is expected to improve in the mid-teen range for 1QFY27, supported by better yields, higher load factors, and the implementation of fuel surcharges, despite ongoing seasonality and a low base from the 1QFY26 disruption.

Taking into account the company's better cost control, Motilal Oswal has increased its estimated EBITDAR for FY27E and FY28E by 5% and 2%, respectively. The research firm has largely retained its earnings estimates for FY27E and FY28E. Motilal Oswal values the stock at 9x FY28E EBITDAR, arriving at a target price of INR5,600. The firm reiterates its "BUY" recommendation.

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