IndiGo share price is firing on all cylinders: buy, sell, or hold?

IndiGo share price is firing on all cylinders as it continues beating most global airlines like IAG, Lufthansa, Southwest, and Ryanair. It has risen in the last two consecutive months and is sitting at a record high of ₹4,951. 

Notably, the stock has jumped by over 350% since going public in 2015 while the US Global JETS ETF (JETS) has dropped by over 25% in the same period. Year-to-date, it has soared by over 60% while the JETS ETF, which tracks the biggest airline stocks, has dropped by 1.60%. 

Business is booming

IndiGo, India’s biggest domestic airline company, is firing on all cylinders, helped by its robust demand. 

The company owns 382 planes and conducts thousands of flights each day, carrying thousands of people. In the past few years, the company has also expanded its operations in other countries like Turkey, Saudi Arabia, and Azerbaijan. 

IndiGo believes that it has room for more growth. Last year, the company made a giant order of 500 planes from Airbus, an order bigger than its current size. The total order size with Airbus stands at 1,330. Most of the planes in its fleet are leased, which helps it to lower its operation costs. 

IndiGo has benefited from the ongoing India’s economic growth. It expanded by 7.3% in 2023 and analysts at UBS expect that it will rise by 7.2% this year. 

The most recent earnings showed that the company’s business was doing well. Its total revenue came in at ₹202,489 million, or $2.4 billion, higher than the ₹171,609 million it made in the same period in 2023. It was also a big increase from the ₹31,703 million it brought in in Q1’22. 

IndiGo’s profits are also doing well. Its EBITDAR rose by 29.7% YoY to over ₹58,111 million while its profit size jumped by 13.9% to ₹27,288 million. 

India’s IndiGo has demonstrated better metrics than most airlines. For example, its net profit margin in the last quarter stood at 13.9% while Southwest Airlines had 0.29% while Delta Air Lines had 7.46%. Ryanair, the biggest discount airline, had a profit margin of 12%. The company does that because of the relatively lower fuel and labor costs in India.

IndiGo also has one of the best balance sheets in the industry. It ended the last quarter with over 220.9 billion rupees or $2.6 billion, a substantial amount.

Risks for investing in IndiGo

Still, there are several risks you need to know when investing in IndiGo. First, there are signs of insider sales of the company’s stock. The most recent data shows that Rakesh Gangwal’s family trust has sold 5.24% of the company worth over $1.3 billion. These are substantial sales since the company has a market cap of over $22 billion.

Second, the company is exposed to foreign exchange risks now that the Indian rupee has crashed to a record low. The USD/INR pair was trading at 83.50, a few points below its record high of 84. Similarly, the EUR/INR pair was trading at 93, lower than its all-time high of 94.

A depreciating local currency is a bad thing for IndiGo for two reasons. First, since it does business in rupees, it means that its plane purchase costs will be higher. Second, it means that its fuel costs, which are priced in USD will be under pressure. In the last quarter, its fuel costs rose by 10%.

Further, the company has an exposure to Pratt & Whitney engines, which are going through repairs. The management hopes that planes groundings will start to ease by the start of 2025. On the positive side, it has received some compensation from the engine manufacturer.

The other risk for the IndiGo stock price is that airline stocks tend to be highly cyclical. A good example of this is Ryanair whose stock surged to $148.60 earlier this year and has dropped to $109 today. 

Similarly, Southwest, which was a highly popular airline, has crashed by over 52% from its highest point in 2021. 

IndiGo share price analysis

Turning to the weekly chart, we see that the IndiGo stock price has been in a strong bull run for a long time. In this period, the stock has constantly remained above the 50-week and 100-week moving averages.

It recently crossed the important resistance point at ₹4,606, its previous all-time high. However, the Relative Strength Index (RSI) and the MACD indicators have formed bearish divergence patterns. 

Therefore, while the trend-following concepts recommend buying the stock, there is a risk that it will have a pullback in the next few months. I suspect that the pullback will happen as the stock nears or retests the key resistance point at ₹5,000.