India's Largest Airline Fell 37% from ATH | Permanent Damage or Temporary Storm? | CA Rachana Ranade

[00:00:00] Sehr gut, sehr gut, sehr gut! Sehr gut? Visu Steuer ist sehr gut! Das sagen ganz viele! Cool, wer sagt das? Stiftung Warentest, Computer Build, Focus Money, Chip, Finanztip, such dir was aus! Mega! Aber das ist doch bestimmt kompliziert! Nö! Einfach Foto von der Lohnsteuerbescheinigung machen und fertig! Klingt sehr gut! Ist sehr gut! Hol dir dein Geld zurück! Mit Visu Steuer! India's Largest Airline Almost 64% Domestic Market Share

[00:00:27] But still, the stock was down by almost 37% from its all-time high! I hope you have guessed the name of the stock. It is Interglobe Aviation, very well known as IndiGo. So in today's video, we are going to actually break down why this stock corrected. We will try and understand what could turn it around and what the valuations actually looks like once you go beyond the headline number loss.

[00:00:50] Hey folks, CA Rachana Ranade here. So before we start with the actual reasons of the fall, let's first understand about what the chart of Interglobe Aviation says and for that have a look at this. Now if you see, this is where the war started and the stock saw a correction of almost 6% on 2nd of March. Okay, now what has happened? This is 16th March and today 17th of June. You might be like, why are you showing such an old data?

[00:01:18] The reason is very simple. SEBI guidelines, they don't allow me to show latest 3 months data. And that's the reason why you have to tell me whether this gap has been filled or not. Because ideally, this level should act as a resistance which is 4795. So tell me in the comment section, are one already taken out? Is the stock currently trading above this or not? And if it does, then this is a very small gap which is yet to be filled.

[00:01:43] And if you are aware, we had already done a video on this wherein we talk about the IndiGo flight disruptions. And this is one small gap which is yet to be filled in. So this would be the second resistance. I want you all to tell me in the comment section whether this also has been taken out or not. In the next section, we'll start with the top 5 reasons what could have led to the fall of Indigo. Now, the very first reason could be poor Q4 FY26 results.

[00:02:09] Indigo reported a Q4 net loss of almost 2500 crore rupees and compare that to a 3100 crore profit in the same quarter last year. The stock fell almost 3.6% on the result day alone. Now, what drove the actual loss? There are multiple reasons.

[00:02:28] It could be fuel costs, rupee depreciation, forex losses and almost 250 crore rupees in exceptional items that was related to new labor codes. Now, here's one more important nuance that you must know. Management stated that excluding the one-off impacts, FY26 underlying profit stood at almost 7,500 crores versus almost 8,900 crore profit in 2025.

[00:02:56] So, was it lower on a year-on-year basis? Yes, but it was not a collapse. Now, with that, let's move on with reason number two, which is about geopolitical disruptions. Everyone knows about this. West Asia tensions disrupted Indigo's international operations during Q4. The airline, in fact, was forced to cancel a large portion of its almost 160 Middle East flights.

[00:03:20] And management said that capacity since has recovered to around two-third of its previous levels. Now, let's move on with reason number three, which is foreign exchange volatility. Now, IndiGo is highly exposed to currency risk. Only 36 out of its almost 441 aircrafts are owned. So, the rest are obviously leased, right?

[00:03:44] And most lease payments or maintenance costs, fuel expenses, all are US dollar denominated. The rupee weakened over 11% against the US dollar in the past one year. And for Indigo, that's not like a chiller item. It's like a direct hit in their P&L. Let's move on with the reason four, which is fuel costs. Fuel costs is nothing but the ATF, which is the air turbine fuel or the aviation turbine fuel.

[00:04:12] That accounts for roughly 40% of Indigo's operating costs. The good news is in Q4, that is the fuel cost per available seat kilometer, declined roughly 5% year on year due to lower Singapore jet fuel prices. But what is the risk? Any increase in global fuel prices flows directly into their costs, but with about a one month lag. Okay.

[00:04:39] Moving on with the final reason number five, which is operational disruptions. And if you have already seen this video of mine, you would probably know about what I'm telling, but I'll just quickly summarize this for you. Between 3rd and 9th of December 2025, IndiGo saw around 2,500 plus flight cancellations and about 1,800 plus delays. Over 3 lakh passengers were impacted and the stock fell almost 11% in that week alone.

[00:05:07] DGCA, which is India's aviation regulator, held an inquiry and the disruptions were attributed to operational over-optimization or inadequate crew planning and poor preparedness for revised pilot duty rules under the FDTL. And what happened was Indigo was subsequently penalized for 22.2 crore rupees. Now, that's a lot of negatives stacked together.

[00:05:32] But the question that an investor needs to ask is, are these headwinds permanent or are they cyclical? Which brings us to the other side of the story, which is what could work in Indigo's favor? And that's what we are going to understand in the next section of the video. Let's start with the very first factor, which is ATF price stabilization.

[00:05:52] Now, ATF prices surged sharply due to the West Asia crisis from around 60.5 rupees per litre in March 2026 to around 142 rupees per litre in May 2026. That's more than double in just two months. But the union cabinet approved rupees 10,000 crores in budgetary support for OMCs to facilitate stable ATF pricing amid this entire crisis.

[00:06:20] Domestic ATF prices have since stabilized at around 115 rupees per litre. Still elevated, but the shock has partially been absorbed. The second factor is fuel hedging strategy. Now, one issue that's been raised is that Indigo remains largely unhedged on fuel. What does it mean? It means that when fuel prices spiked, they absorbed the full impact. Management is now actively considering fuel hedging.

[00:06:48] So, their overall net exposure in dollar terms comes to around 1000 crore rupees. And they have done an initial hedging of around 130 crore rupees so far. So, if implemented properly, earnings volatility could reduce meaningfully. Let's move on with the third factor, which is reduction in grounded aircraft. Some of Indigo's aircrafts are grounded due to Pratt and Whitney engine issues.

[00:07:15] And these are called as AOGs. That is nothing but aircrafts on ground. Lower the better, right? So, management expects that Pratt and Whitney related groundings to decline from around 40s to 30s by the end of this year. And each plane back in the air means more capacity, more flights, and obviously more revenue. Let's move on with the fourth factor, which is demand holding up. Now, this is a very important point.

[00:07:43] Management stated that as they raise fares, the market is inelastic to those hikes. The fares are sticking, demand is still there. And that's actually a strong signal for a consumer-facing business where the pricing power is rare and Indigo appears to have it. Moving on with the fifth factor, which is the new CEO, Mr. William Walsh. Now, he is set to take over as the CEO in August 2026.

[00:08:11] And he has an experience leading global full-service carriers like Aer Lingus and British Airways. Management plans to continue expanding IndiGo's international operations or international footprint through XLR aircrafts and potentially the A350 while keeping its profitable A320 and A321 short haul business at the core.

[00:08:36] Well, now that you have understood about top five positive, top five negative points, now let's talk about something very interesting, which is valuations. Generally, we always consider PE valuation. Now, the problem here was that Q4 IndiGo reported a loss. In such a case, how can we try and work around something so that we can compare the PE with past five years or three years median PE? For that, let's understand this. So, what was the overall net loss for Q4 FR26?

[00:09:05] It was 2,400 crore rupees. Was there any underlying exceptional item? There was, if you remember, I talked about the Forex loss and some exceptional items also. Now, if I were to remove those, then the underlying profit would be around 7,500 crore rupees. Okay. So, from a loss of 2,400 crore rupees, I'm removing these exceptional items. That will take me to roughly 7,500 crores of underlying profit. What is the average shares, number of shares which are outstanding?

[00:09:34] That's around 38.66 crore shares. What will be the adjusted EPS in that case? It will be around 194 rupees. The current price, as at the time I'm shooting this video, is around 4840. So, can you now very easily calculate the adjusted PE? Obviously, it is nothing but your current price divided by the adjusted EPS. And that comes to 24.95. Now, ideally, I have to compare this PE with the median PE, let's say, three years ago, five years ago, whatever. And for that, I'm on screener.

[00:10:03] And you can check that for five years, median PE is 26. Three years, median PE is again 26. One year, median PE is around, oh, 26. I think three year median PE is a good enough time frame, which is 26. And current median PE, and current PE that I told you is lower than this. I hope you have understood a lot about Indigo today. And as always, I always say that do your own research before you make any investment decision. But I hope you loved a lot of content in today's video.

[00:10:32] If you did, please don't forget to share this video with your friends. Please don't forget to smash that like button. I'll see you in the next one. Until then, take care. Chai and bye-bye. You might have come across such advertisements on various social media platforms. Please note, all of these are fraudsters promising unbelievable returns through stock tips. I don't provide any calls or advisory services. I provide only educational content through my social media handles and through my website,

[00:10:59] Rachana Ranade.com and Rachana Ranade.in.