Why IndiGo shares are under pressure despite strong June quarter earnings

IndiGo shares slipped over five percent during the day in the August 3 trading session. This, despite a stellar quarterly result in which the airline recorded the highest ever profit and margin.

IndiGo reported its highest-ever quarterly profit of Rs 3,090.6 crore in the June quarter, as tailwinds of strong operational performance and favourable market conditions bolstered the financials of the country's largest airline.

The carrier's parent, InterGlobe Aviation, also posted its highest-ever quarterly total income of Rs 17,160.9 crore in the first quarter of the current fiscal and also announced plans to set up a venture capital entity.

Despite the strong result and positive commentary, IndiGo shares were trading 3.7 percent lower at 12:15 pm. Here’s a look at likely factors why the stock is under pressure

The stock is witnessing some profit booking in today's session as it has rallied over 38 percent since the lows in March this year.

Brokerages have pointed out that in the first quarter IndiGo benefited from strong pricing and fuel-led lower costs and competitors suspending operations. However, Macquarie says in the near term, yields are expected to be soft.

Rakesh Gangwal and family still hold nearly 30 percent stake in the IndiGo parent InterGlobe Aviation. Rakesh had resigned from the company's board of directors in February last year stating that he would gradually reduce his equity stake over the next five years.

Earlier in June a report suggested that Gangwal family could sell further stake since the five month lock in period is over. As per a CNBC Awaaz report, the Gangwal family may sell 5-8 percent of its stake in Interglobe Aviation via a block deal.

Meanwhile, looking at the bright side, IndiGo saw a seasonally strong quarter with a boost in Indo -Europe travel. In June, the airline also announced the launch of codeshare flights to the United States through Istanbul in partnership with Turkish Airlines. The announcement was part of the airline company's effort to expand international connectivity.

Also since GoFirst created a supply vacuum as its flight operations were suspended, IndiGo’s market share is likely to trend upwards.

IndiGo has maintained its capacity guidance of above mid-teens for the 2023-24 fiscal, with around 40–50 planes. For the second quarter, IndiGo expects capacity to be up 25 percent on a year-on-year basis, which is slightly higher than expectations.

In its statement after the earnings, the airline also said near term P&W engine issues had limited impact on IndiGo's capacity plan. It said "single-digit" numbers of planes are expected to be impacted in the first phase of inspection of engines by Pratt & Whitney for certain anomalies.