IndiGo shares gain 44% in last one year but InCred Equities sees sharp downside from here; here's why

livemint.com:

₹2,745.95, on July 13, 2023. Since then, it has shed 8 percent to currently trade around ₹2,519. However, it has jumped 44 percent in the last 1 year and over 25 percent in 2023 YTD, giving positive returns in 6 of the 10 months so far in the current calendar year.

The stock has gained almost 6 percent in October so far, snapping 3 straight months of losses. It has risen the most in May, up 17 percent and lost the most in February, down 12.6 percent. Despite robust returns this year, brokerage house InCred Equities has retained its 'reduce' call on the stock with a target price of ₹1,600, indicating a downside of 38 percent.

This is mainly on the back of a decline in passenger load factor (PLF), it noted. Domestic industry PLF fell 509 bps to 85.7 percent in September 2023 and 592 bps to 84.9 percent in Q2FY24. While Q2 is a lean tourist season, the decline in Q2FY24 is more than the average Q2 decline over FY18-20 (219 bps) vs the June quarter, informed InCred.

Meanwhile, IndiGo’s domestic PLF for Sep 23 also dipped 619 bps (vs Jun 23) to 84.7 percent and fell 690 bps in Q2FY24 to 84 percent, a tad lower than the Q2 average over FY18-20 (84.8 percent) versus in the June quarter. The brokerage believes the PLF decline has led to a sharp dip in IndiGo’s tariff in Q2FY24, it further stated. "Indian aviation PLF dipped sharply in the September quarter (Q2FY24) vs the June quarter (Q1FY24).

We believe this is not only due to seasonality (2Q is a weak tourist season) but it signals a rise in competition and an end to supernormal profit post the stoppage of GoFirst," said the brokerage. As per the brokerage, the stoppage of GoAir in May 23 boosted IndiGo’s 1QFY24. However, the history of Indian aviation reveals that