Nuvama Institutional Equities has reiterated its 'Buy' rating for InterGlobe Aviation Ltd, which operates IndiGo, setting a target price of ₹5,583 per share. This recommendation comes despite a recent 7% correction in IndiGo's stock price following a sharp rise in global energy prices, with Brent crude increasing by approximately 17% since early September 2026.
Strong Q2 EBITDAR Growth Expected
The brokerage projects a significant 72% year-on-year increase in IndiGo's EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization, and Rent) for the September quarter of FY27. This anticipated growth is primarily attributed to a 28% increase in yield and a substantial 54% reduction in forex costs.
While an 11% rise in CASK (Cost per Available Seat Kilometer) excluding fuel and forex, alongside a 150 basis point decline in passenger load factor, are expected to partially offset gains, Nuvama believes higher fares and lower forex losses will be key drivers of quarterly improvement. Available Seat Kilometers (ASKM) are projected to rise 1% year-on-year, aligning with management guidance amid a seasonally weak demand environment.
Navigating Rising Fuel Costs
Global energy price surges have raised concerns over higher fuel expenses and potential margin pressure for airlines. Nuvama estimates IndiGo's fuel CASK for October 2026 could sharply increase by 26% over its Q2 estimate, partly due to a one-month lag in aviation turbine fuel pricing in India. However, the brokerage expects this increase to be largely mitigated by the airline's fuel surcharge levy.
IndiGo is seen as well-positioned to leverage the industry's downcycle, converting near-term challenges into long-term opportunities. Analysts suggest the airline could successfully replicate its domestic operational strengths in international markets, potentially yielding better rewards as India solidifies its role as a global aviation hub.
Industry Performance and Q3 Outlook
For Q3 FY27E, scheduled flights for major Indian carriers are forecast to grow 6% year-on-year, driven by a 39% surge in international flights. Conversely, domestic flights are expected to see a 1% decline. IndiGo is anticipated to slightly lag the industry, with its scheduled flights rising 1% year-on-year, marked by a 6% fall in domestic flights and a robust 48% growth in international operations.
Data for July and August 2026 reflected softer demand across the industry. Domestic ASKM for the industry fell 4% year-on-year, while IndiGo's domestic ASKM rose 2%. Domestic passenger traffic saw a 6% industry-wide decline and a 3% dip for IndiGo. In international operations, industry ASKM decreased by 9%, with IndiGo experiencing a 1% fall. International passenger traffic declined 13% for the industry and 8% for IndiGo.
These trends led to a decline in domestic passenger load factor by approximately 250 basis points for the industry and 350 basis points for IndiGo. International passenger load factor also fell by around 325 basis points for the industry and 200 basis points for IndiGo.
Valuation and Recommendation
Despite these industry headwinds, Nuvama notes that IndiGo has outperformed the broader market in traffic trends. The stock is currently trading at 7 times its FY28E EV/EBITDAR, reinforcing the brokerage's 'Buy' recommendation with the target price of ₹5,583.