What do you guys think about Indigo as a long term buy (~5-10 years)? Its trading at 10-20% from its all time lows

[muse86]

Pros

1. Market leader in India, only airline which has been continuously profitable
2. It had quite large cash reserves before the crisis to allow it to ride this out
3. Indian airline will most definitely continue to grow in long term
4. Current crisis could shutter competitors like Spicejet which were already on the edge and force Tata to exit one of its two airline stakes (Vistara and Air Asia)
5. Increasing international routes
6. No exposure to Boeing Max
7. Known to be diligent and out of the box at cutting costs

Cons

1. Main promoters have 37% share each who are at war with each other
2. Allegations of corporate misgovernance. Ironically the fact that both promoters are at odds with each other should keep both of them on their toes and reduce risk of fraud
3. Airline industry is quite difficult in general
4. Very large pending order with Airbus. Needed to refresh anyway but also a risk of overcapacity if the market doesn't grow as expected. Cancellations are quite expensive.
5. P&W Engine trouble history. Although I heard they are changing vendor for newer planes, there a continuous grounding risk from DGCA. i do hope they use the grounded time now to replace all engines ASAP.

 

[resjudicata]

@muse86 I agree with most of your analysis but I think we need to factor in what exactly a full recovery might look like. The current crisis has pushed a lot of companies towards online work and meetings which I think could eat into business travel even after recovery simply because companies that have been forced to invest in an online working/meeting infrastructure would be hesitant to discard it later on (especially when it saves money that is otherwise spent of business travel). The fact they are able to conduct business without business travel will make them question its usefulness at current levels and they will likely look at cutting back expenses here.

IMO in the overall airline industry, business travel will take a hit, individual travel will continue to be seasonal and cargo transportation will become a bigger chunk of the pie.

 

[koechophe]

@resjudicata I broadly agree with all your points except the one talking about cargo. Air remains one of the most expensive way of transporting goods and is best suited only for goods which are highly time sensitive.

For bulk goods, the sheer economics of road or rail can't be beaten, admittedly it is slower but with clever supply chain planning this is usually not a roadblock.

 

[wisdomandlove]

@koechophe Will be a bigger share of the pie does not necessarily mean cargo transportation by air will increase. If the other reasons for air travel decrease and cargo does not or it decreases but not to the same extent as others, then cargo will automatically be a larger component than others.

 

[breaf123]

@muse86

Allegations of corporate misgovernance

This alone is enough to stay the hell away! Just look at so many companies from Vedanta group to Aditya birla etc which have had bad governance and despite being market leaders have not brought any rewards for

Historically none of Indian airlines have been good stocks in the long run. The industry depends heavily on political influence, runs on whims and fancies of governments, and is also prone to setbacks the most.

For safety in investment and peace of mind, look at high ROCE, high ROE, growing profits YOY, low debt/equity .

Low price is no indication that it is a buy. Price can definitely go lower.

On the same note, for companies having high price and high P/E, they have shown they can go higher and higher.

 

[rhondar51]

@breaf123 What are the mis governance in Aditya Birla? Just curious.

 

[breaf123]

@rhondar51 Lot of their corporate moves end up enriching themselves rather than the shareholders

https://mnacritique.mergersindia.com/aditya-birla-rejig-restructuring/

https://www.livemint.com/Companies/...irlas-doubledipping-is-hardly-appetizing.html

 

[ihlf]

@breaf123 Vedanta Misgovernance ?

 

[krkrlm7]

@muse86 Isn't there a possibility that the share price will go down further when earnings for Q1 will be out? I read that the recovery could take 2-3 years.

https://www.bloomberg.com/news/feat...-covid-19-will-change-airlines-and-how-we-fly

 

[breaf123]

@krkrlm7 Do you think this is a possibility for IRCTC as well?

I am looking to add to my folio however price has not come down much even though trains ar enot even running now

 

[robert12]

@breaf123 People are investing just because it's monopoly

 

[muse86]

@robert12 Yeah, the whole crash and burn thing told me that nobody has any idea on how to value this, its just like tulips

 

[jmaak]

@breaf123 Bought a shit load of irctc in March 19th I’m happy just gonna wait 10 years and sell that baby

 

[resjudicata]

@krkrlm7 Yes recovery will be drawn out depending on how the situation unfolds but OP is looking at a 5-10 year horizon so this would be a decent chance to buy the share cheap

 

[sakranomoko]

@muse86 I don't think you should look at % away from bottom or %fall from top at all.

Personally not making any fresh investments rn. Don't mind missing the bottom 10-15%.

My simple thinking is that if companies themselves dont have any visibility and are unable to gice guidance, then its very difficult for an investor to justify any assumptions.

On Indigo specifically, I don't think it's worth it because I dont think airlines are a good investment bet. Earnings are tok vulnerable to stuff like this and Indigo also has possible corporate governance issues which somehow always seem to come back to bite.

 

[muse86]

@sakranomoko In an ideal situation, I would like to do a fundamental analysis to understand what price I would be comfortable buying. But I am not there yet, still studying on how to read financial statements. I am assuming that once the whole COVID thing goes away, flying and profitability would go back to 2017-18 levels.

 

[jmaak]

@sakranomoko Unless there is another major crash you’ll miss the bottom by way by more than 15-20%

 

[sakranomoko]

@jmaak Not sure about major but another fall is what I'm expecting

 

[willby]

@muse86 I think the other comments are enough of an indication that this could be an unpopular but correct bet. Listen to everyone and do what you have to. I’m playing this bet and betting on both SpiceJet and Indigo. Between both of them, you got 60% of market share. But this is your risky bet of portfolio and should not be more than 10%.

 

[kevin184]

@willby I agree with this comment. Whilst I am a newbie in investing - I have been studying trends and researching stocks for a while. Indigo is a risky stock - but one that might give you good returns in the medium term because sentiments will be positive once flying resumes. Plus whilst international travel might go down drastically - I think domestic would once again pick up in sometime. INDIGO is a heavy domestic player and would be a good pick. But please keep this 10% of your entire portfolio as suggested by @willby