Aviation Stocks –

  • Crude oil is going down. Fuel is getting cheaper. Tickets will not be cheap. So it is more profits in terms of margin. A 1% reduction in crude price changes earnings positively by around 2%. [Refer: Short Term Investment Idea – Paint Stocks]
  • Buffet’s aviation buys created a significant repel amongst all aviation stocks everywhere.
  • On the demand side, India’s air passenger traffic is estimated to grow five times in the next 20 years.
  • Domestic air passenger traffic saw a year-on-year rise of 15.77 percent in February this year, data from aviation regulator DGCA.
  • Smart cities mean airports. Airports mean money for aviation companies.
  • A 1% appreciation of the rupee changes earnings positively by around 3.5%. The rupee was bound to appreciate post-budget eyes closed.

I’m holding Indigo: Jet Airways: Spicejet in 3: 1: 2 weight. This weight allocation is based on a weird fact.

Every airline follows the strategy of replacing the old fleet with new fuel-efficient planes.

  • Indigo had ordered 430 aircraft in 2011.
  • Spicejet had ordered 205 aircrafts.
  • Jet Airways had ordered 75 aircrafts.
  • Indigo has the highest market share of 39%.
  • Amongst Indigo, Jet Airways, Spicejet; the latter two shot up post demonetization but room for Indigo was/is still open while the other duo may face correction.
  • Jet Airways is less aggressive than other two but it’s relatively cheaper in terms of valuation (EV/EBITDA) and still holds more market share than Spicejet.

When I had invested I had Indigo: Jet Airways: Spicejet in 3: 1: 5 weight. Because

  • Spicejet was trading cheaper than both of them in December end.
  • It had posted the profit in that quarter and less to have posted the loss. So from an investor’s eye; it had higher buy sentiment.
  • In terms of EV/Ebitda, SpiceJet trades at 8.2 times, lower than Indigo’s 11.9 times valuation.

Currently, though I hold Indigo, I am thinking to leave it before quarterly results because to be sure, even as there are indications of improvement in yields, Indigo’s profits for the March quarter are expected to decline year-on-year given that crude oil prices were comparatively much lower in the same period last year. Year-on-year yields, too, are expected to fall.

But then IndiGo Offering Tickets From Rs. 1,119 As Price War Resumes.

  • It has started 35 new flights.
  • IndiGo said last weekend that it flew 900 flights on April 7, 2017.

Anyways it will be the risk to keep Indigo positions open pre-results.

The entire industry is already super bullish and might face correction anytime but it’s still buy in dips. I had recommended Indigo in February here – Short Term Stocks to buy in February

But if you say 1 year, I need to re-think. But I’ll post my profits when I close this thematic trade.

Originally Published on Quora on Apr 12, 2017.