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While IndiGo’s Q4 losses are higher than expected, the worst is not over yet – Mint

MUMBAI: It was a foregone conclusion that the March performance of InterGlobe Aviation Ltd would be miserable. InterGlobe runs India’s largest airline, IndiGo.

The company’s March quarter net loss at Rs1,160 crore is worse than analysts’ expectations. For instance, analysts from Kotak Institutional Equities and Prabhudas Lilladher Pvt. Ltd were expecting losses at Rs639 crore and Rs900 crore, respectively. The Street expected IndiGo to report a loss as the recovery in domestic passenger traffic that the Indian aviation sector was witnessing till February, was stalled due to the second wave covid-19 cases and related restrictions. Higher aviation turbine fuel (ATF) prices did not help either.

In fact, higher fuel cost is one reason for the sequential increase in IndiGo’s negative unit spreads. The measure was at a negative Rs0.60 per available seat kilometer (ASK) in the March quarter versus Rs0.41 per ASK in the December quarter. Unit spreads refers to the difference between revenue and cost on a per ASK basis.

“We would highlight here that ASK went up by 25% QoQ while fuel price went up by 26% QoQ implying total fuel cost should rise by 51% QoQ. However, fuel costs rose 68% sequentially. We would seek more clarity here on the drivers behind this sharp increase in fuel costs,” said analysts from Ambit Capital Pvt. Ltd in their results first take note.

“Operating cost efficiency ex-fuel remains impressive with Cask ex-fuel down 3% year-on-year and 2% quarter-on-quarter,” they added.

What also augurs well is that IndiGo has managed to pretty much maintain its cash position. Its free cash at the end of March stood at Rs7,099 crore vis-à-vis Rs7,444 crore at the end of December. For the same period, total cash, including restricted cash, stood at Rs18,568 crore vis-à-vis Rs18,365 crore, respectively. Analysts point out that the various liquidity measures that the airline has undertaken during the year have helped offset cash burn during fiscal 2021.

To be sure, IndiGo’s June quarter financial performance is expected to be worse than the March quarter, given that the adverse impact of the pandemic has been more pronounced in the current quarter in terms of weakness in air traffic. Needless to say, investors will track management commentary closely during the earnings conference call on Monday post market hours, particularly for cues on daily cash burn and overall outlook.

Interestingly, these concerns don’t seem to be reflected in IndiGo’s share price. The stock had touched a 52-week high of Rs1,831 on 31 May on the National Stock Exchange. Since then, shares have corrected around 4% until Friday. IndiGo announced its quarter and year ending March 2021 results on Saturday.

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