Indigo stock analysis

Hello and Welcome Until a few years ago whenever we spoke about airlines, for us those who belonged to the middle-income group taking a flight used to be a dream. But in the last few years, the airline industry has grown so big that flights have become a part of our lives. If we have to go a little far we prefer airlines. Today we are going to talk about Indigo. IndiGo, in the Indian airline industry, is a profitable company. 

And which cleared a lot of myths related to the Indian airline industry, and became a profitable company. To the extent that whenever Warren Buffet has spoken about the airline industry, he has said that it is very dangerous to invest in this industry. But IndiGo is such a company that is not only profitable but also in the Indian airline industry it has more than 45% of market share. Why does this happen in the airline industry that even though the company gets launched but does not succeed? If I take a look at the history of the Indian airline industry, There are so many companies that came and even expanded but due to debt and other reasons had to close down their operations. In this video, I will tell you about IndiGo's business model, and I will tell you about how a small company enters an industry where most businesses do not succeed, with one aircraft in 2006 and by 2019 they have 217 aircraft. Apart from this, I will teach you how to do a fundamental analysis of a company in the airline industry. In addition, I will compare IndiGo with its competitors. At the end of the Blog, I will tell you what is happening in this company and what it has to offer its investors. Whether you should invest, sell? or hold? After the 1990s, a new concept came into being in the US airline industry which disrupted the entire airline industry. And that concept was LCC. Low-Cost Carrier companies.

Those airline companies were not present in India till then. India then had three or four airlines operating. This gap was identified by Rakesh Gangwal and Rahul Bhatia. They thought why not bring LCC to India? and bring the airline industry to the common people. So that the growth of the airline industry is bigger and the margins are better too. To talk about its founders, first of all, Rahul Bhatia who understood the regulatory norms of the Indian airline industry, and Rakesh Gangwal who understood the airline industry very well because he used to work for US airlines. This is why he designed such an airline in India which ran at low cost and also gave good margins. In 2004, when this company wasn't even operational, that time this company placed an order for 100 planes with airbus, at a time when it didn't have even one flight in operation. Airbus benefitted from this because they were also planning to enter the Indian airspace. Now you must have understood that IndiGo's co-founders had good knowledge and experience. But how did they make their business model different from other businesses? So the first difference they made was that all their planes which operated in India were the same. If they were using A320, then all the planes were A320. At that time, its competitors were using different models of airplanes. This benefitted IndiGo. Because it didn't have to train their pilots differently. If a pilot could fly one plane, they could fly other planes too. Apart from this, they also saved maintenance costs. If all the aircraft are the same, then their maintenance cost will be the same, there is less training required. In every aspect, IndiGo benefitted from this. This helped IndiGo to become a very big company. 

The second point of difference was that whenever IndiGo gave a new order to Airbus it used to be bulk orders. When Airbus takes bulk orders, it would give discounts to IndiGo. And IndiGo would use this aircraft for only a short time so that the maintenance cost is less, and people would sense the feeling of a new aircraft when they traveled. As you can see from the screen how, when, and the numbers of IndiGo's orders As I told you, IndiGo orders in bulk. That is exactly what we get to see on the screen. For example, in June 2005, IndiGo ordered 100 Airbus aircraft when they had only just started their operations. Later, 180 in June 2011, and 250 in August 2015 Now I will do fundamental analysis. where I will tell you If ever you want to inspect a company see how it is performing in the airline's industry, Then how do you evaluate it? What factors and parameters should you consider? Whenever we do an analysis of an airline company the first and the most important point is Every company Every airline company includes in its annual report what their passenger load factor is. 

Now you must be thinking why I didn't explain it to you. In simple terms, if there is an aircraft that has 100 seats, and it flies from A to B if only 30 out of 100 seats are occupied, the occupancy then becomes 30%. 70% of the seats are empty The less it is, the more dangerous it is for the airlines. Because it will have the same expense to fly the plane. If the seats remain unoccupied the company will incur losses. To talk of IndiGo's load factor it is around 86%. As you can see from my screen, I have compared IndiGo's load factor with that of its competitor Spicejet. IndiGo's load factor in comparison to that of 2018 has gone down slightly, to 86%. To compare this with the load factor of SpiceJet, it is now 92%. Which is way better than Indigos. But to compare it with that of the previous year, the load factor of SpiceJet has come down a little in the last year. The second important parameter on the basis of which we can analyze a company in the airline industry is RASK. This tells us if an airline flies one kilometer, how much profit it makes on one seat. If I make a comparison on the basis of RASK on IndiGo with last year then this year IndiGo's RASK has come down a little. Last year IndiGo's RASK was 3.64 this year it is 3.57. So the revenue that IndiGo makes on every seat per kilometer has gone down. But if I compare this with its competitor SpiceJet then the RASK of SpiceJet is bigger this year as compared to last year Now you know what IndiGo's revenue per seat per kilometer is. But until we know how much expense there is against this revenue we will not be able to analyze the company very well. There is a parameter that calculates expense per seat per kilometer which is called CASK. In the case of IndiGo, CASK was 3.15 last year, per seat, per kilometer. 

This year it increased to 3.59 per kilometer. Now I have told you that cost per seat for IndiGo has increased. What factors affect these costs for a company in the airline industry? It is important to know that too. Whenever we talk about the Indian airline industry there are two main factors that impact the costs: First, crude oil. Because to run an airline business the main expense is in crude oil whenever the price of crude increases then the cost increases. Second: currency depreciation. Because all our oil is imported, so when Indian currency depreciates, the cost to import oil also increases. This leads to increased prices. There is an interesting point for you here. IndiGo's CASK is higher than its RASK. So IndiGo must be running on loss. But no, IndiGo has showcased profits this year. Because IndiGo has other means of income. If I talk about those revenues which IndiGo gets for example from extra luggage, ticket cancellation charges, ticket modification charges, and cargo business, in fact, IndiGo grew by 17.6% than last year. Now investors understood some of this. But before making an investment, it is important to know everything about an industry. Now you must be thinking which company has how much market share in the whole Indian airline industry, Come on, let's discuss that. 

As you can see on the screen, in the Indian airline industry, the highest market share is with IndiGo which is 47.1%. After IndiGo comes SpiceJet with 13.7%. India has a market share of 12.9% Friends, This list has some companies that are no longer operational. There is an interesting point that I would like to point out. If I talk about Low-Cost Airlines in the entire industry 76% of India's total market share is with Low-Cost Airlines. As IndiGo started now more and more companies have come up which operate on the same model. Until now I explained how to fundamentally analyze IndiGo. You can take more inputs, and research deeper. But it won't be fair if I don't give you the current news. Because in recent days, a piece of news related to IndiGo came in which an allegation was made on IndiGo in relation to corporate governance. This allegation was made by none other than one of its co-founders on the other. So, if you are an investor in Indigo or are thinking about investing, study this news carefully and use the information I gave you and then decide on your own whether you should buy this share sell it or hold it. Friends, we do not give any recommendation in any Blog to buy or sell any shares. All our videos are strictly for educational purposes. We try to explain in basic terms how to analyze a company before investing.