IndiGo's Sensex entry puts airline stock in spotlight
What's the story
InterGlobe Aviation, the parent company of IndiGo, will be added to the 30-share Sensex today. The move comes after Tata Motors Passenger Vehicles was removed from the index following a demerger of its commercial and passenger vehicle businesses. The restructuring significantly reduced the free-float market cap of Tata Motors Passenger Vehicles, pushing it below the threshold for inclusion in Sensex's top 30 stocks.
Operational challenges
IndiGo's operational disruptions and market response
IndiGo's entry into the Sensex comes amid major operational challenges for the airline. Earlier this month, thousands of flights were canceled due to new Flight Duty Time Limitations rules. The carrier, which has a nearly 66% share in India's domestic aviation market, struggled to adjust crew schedules under these new regulations. This led to a severe pilot shortage and widespread disruption in operations.
Market impact
Brokerages lower target prices amid operational disruptions
The operational challenges have prompted several brokerages to lower their target prices for IndiGo's stock. Analysts expect these disruptions to increase non-fuel costs and possibly result in regulatory action or penalties. A weaker rupee is also raising dollar-linked costs such as aircraft leasing, maintenance, and fuel expenses. Further, the new FDTL rules are likely to raise employee costs by reducing pilot productivity while increasing hiring and training requirements.
Financial report
IndiGo's financial performance amid operational challenges
IndiGo reported a revenue increase of 9% year-on-year to ₹18,555 crore for the September quarter. However, it also posted a loss of ₹2,582 crore for the quarter as opposed to a profit of ₹2,176 crore in June. The loss was also higher than the ₹987 crore loss reported during the same period last year.