Brokerages See IndiGo As Good Bet To Cash In On Likely Air Fare Hikes, Shares Upbeat

Brokerages are bullish on domestic aviation company InterGlobe Aviation on the back of upcoming airfare hikes and long-term growth potential of the aviation industry.

Brokerage Views: Goldman Sachs maintained its "buy" call and raised the target price to ₹4,700, saying that while there is near-term cost pressure for the company, the long-term story for the company is intact. 

If fresh deliveries of aircraft get delayed, it will put more pressure on costs, the research firm said. Indigo will continue to gain market share and international travel is expected to grow at a compound annual growth rate (CAGR) of 13% till 2030, Goldman Sachs said. 

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In April, Indigo had placed orders for 30 wide-body crafts from Airbus. In June, the aviation company placed orders for 500 aircraft from the French company.

Kotak Institutional Equities also gave IndiGo a "buy" call with a target price of ₹5,700 as it sees fare hikes incoming from airlines. According to the brokerage, domestic airfares with CAGR of less than 2% have grown at a slower pace than consumer price inflation at 5% in the last decade.

The air passengers are a smaller subset of the population with the ability to handle the airfare hike, the brokerage said. 

Air passengers' ability to spend and the huge capital deployed by the airlines is making a case of increasing rates because the airlines have been losing money at current prices, it noted. The research firm said betting on Indigo would be a good play on the theme that airfares will grow over time, given that it is the only carrier making money at present. 

Price Action: Shares of Indigo rose 0.42% to ₹4,240 on Tuesday morning.

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