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Aviation companies are hitting newer air pockets.
Global financial services firm HSBC has downgraded aviation firms, saying IndiGo’s Q1 results sent out a distress signal for the sector.
HSBC cut InterGlobe Aviation rating to ‘Hold’ from ‘Buy’ and the target price to Rs 925 from Rs 1,475.
It also downgraded Jet Airways to ‘Reduce’ from ‘Hold’ with a revised target price of Rs 150 from Rs 375.
SpiceJet's was brought down to ‘Hold’ from ‘Buy’, with the target price at Rs 102, from Rs 165.
InterGlobe Aviation, which runs the largest domestic carrier IndiGo, on July 30 reported a steep 96.6 per cent fall in net profit at Rs 27.8 crore for the June quarter.
The company put it down to adverse impact of foreign exchange, high fuel prices, lower yields and higher maintenance cost.
The Gurugram-based budget carrier had posted a net profit of Rs 811.10 crore in the same quarter last year.
However, sales from operations rose 13.2 per cent to Rs 651.20 crore in the said quarter, compared with Rs 575.29 crore in the year-ago period.
On InterGlobe Aviation, HDFC Securities in a report said, “The management believes that current fares are unsustainable in the long term.
We have lowered our yield growth assumptions for FY19E to Rs 3.63.
We continue to build in yield increase of 3 per cent for FY20E and FY21E.”
HDFC Securities has ‘Neutral’ rating on InterGlobe Aviation with a target price of Rs 909.
“While fuel and forex were broadly known, yield softness was a surprise.
Aviation stocks are down and are trading near their historical trough valuations.
Headwinds will continue to keep the volatility alive.
Any strength in the yield should be the next catalyst,” HSBC said.
On a year-to-date basis, shares of Jet Airways tanked 63 per cent till August 3 while InterGlobe Aviation and Spice Jet slipped 17 per cent and 35 per cent, respectively, during the same period.
