Interglobe Aviation has been rallying in the recent past and the stock closed 4.7 percent in the green on Monday trading at Rs 2055 a share. Indigo's parent company has rallied 8 percent in the last month and an impressive 30 percent in the past six months. The stock is now just 10 percent away from its 52-week high of Rs 2,300.
The rally is across the aviation sector which has felt the brunt of the COVID-19 pandemic shutdowns. The domestic air traffic has picked up and is now at 76 percent of pre-COVID levels.
The air traffic has crossed 300,000 passengers after seven months so that is the positive for the entire industry. The Tata Group is now planning a complete overhaul of Air India's existing operating model as well. They are looking to cut costs and streamline operations and TCS will step in and manage the IT and digital operations of Air India.
Kotak Institutional Equities has put out a note with a buy rating on Interglobe Aviation with a target price of Rs 2,600. They see the Tata’s acquisition of Air India would help accelerate the pace of international volumes for Indian carriers on the whole and also there would be an increase in pricing as the Tatas would want to earn a return on the equity investment, which will in turn means better pricing for the sector as a whole and benefit players like Interglobe.
Meanwhile, Morgan Stanley has said that the Indian airline sector is now consolidating with two groups, IndiGo and Tata that now control 77 percent of the market share and the profitable turnaround for Air India will benefit the entire sector in terms of a better pricing environment.
It is noteworthy that higher aviation turbine fuel (ATF) prices could continue to hamper the profitability of these companies.
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