Kotak Institutional Equities has issued a BUY recommendation on InterGlobe Aviation (IndiGo), setting a one-year target price of Rs6,700, which represents a compelling upside from the current market price of Rs5,599. The research underscores a pivotal shift in India’s aviation landscape: despite robust overall passenger growth, metro-to-metro routes have registered a year-on-year decline for three consecutive months, signaling acute aircraft supply constraints. IndiGo, the market leader, is uniquely positioned to capitalize on this scarcity, with capacity being redirected to underserved domestic and international routes. The airline’s aggressive international expansion, yield improvements, and operational efficiency are expected to drive sustained outperformance, even as industry peers grapple with limited access to new aircraft.

Metro-to-Metro Slump: A Symptom of Deepening Supply Crunch

The most striking revelation from Kotak’s analysis is the persistent decline in metro-to-metro passenger volumes—down 2% year-on-year over February–April 2025—against a backdrop of 9% overall domestic passenger growth. This divergence is not merely a statistical anomaly but a clear indicator of a supply deficit. Historically, such a trend has correlated with rising yields for IndiGo, as airlines are forced to prioritize more lucrative or underserved routes. Over the past six years, when metro-to-metro traffic growth was subdued, IndiGo’s yields climbed at a 7% compound annual growth rate (CAGR), unadjusted for fuel price movements.

Strategic Diversion: Capacity Reallocation and Network Expansion

IndiGo’s management has deftly redirected capacity to new and underserved routes. In the past year, India’s aviation sector has added approximately 35 two-way and 70 one-way domestic routes, most of which have been launched by IndiGo. This strategic shift has led to a meaningful increase in the number of routes capable of supporting two or more daily flights, with non-metro routes now accounting for 68% of domestic traffic, up from 62% in FY2020. The airline has also accelerated its international footprint, with international revenue passenger kilometers (RPKs) surging 30% year-on-year during January–April 2025.

The End of the White-Tail Era: Peers Face Supply Bottlenecks

IndiGo’s principal competitor has exhausted its supply of white-tail aircraft—narrow-bodied jets originally destined for Chinese carriers but redirected to India. This marks the end of a temporary supply buffer, forcing the industry to rely solely on new deliveries from Airbus and Boeing, which are facing prolonged delays. Kotak notes that the airline has secured leases for all suitable aircraft available globally, highlighting the severity and duration of the supply constraint. This dynamic is expected to persist until at least 2027, granting IndiGo a significant competitive edge given its robust order backlog.

Financial Forecast: Earnings Momentum and Valuation Upside

Kotak’s financial model projects strong earnings growth for IndiGo, with earnings per share (EPS) expected to rise from Rs189.6 in 2025 to Rs354.0 in 2027, representing a CAGR of nearly 30%. The brokerage’s target price of Rs6,700 implies a forward P/E of 20.5x for FY2026E and 15.8x for FY2027E, both below the five-year average of 24x. This valuation is underpinned by robust EBITDA margins (projected at 25.1% in FY2026E and 25.8% in FY2027E) and a healthy return on equity (ROE) profile.

Risk Factors: Navigating Turbulence in the Skies

While the outlook is overwhelmingly positive, key risks remain. These include potential spikes in jet fuel prices beyond $79 per barrel, further delays in aircraft deliveries, and irrational pricing in international markets. However, IndiGo’s dominant domestic market share (over 60%) and a 30% cost advantage over peers provide a formidable buffer against these headwinds.

Investment Levels and Strategy: Entry, Targets, and Exit

For investors considering a position in InterGlobe Aviation, Kotak suggests the following investment levels and strategy:

Entry Range: Rs5,400–5,700 (offering a 4% downside cushion from current levels)

Near-Term Target: Rs6,200 by December 2025 (11% potential return)

Long-Term Target: Rs6,700 (one-year fair value, 20% upside)

Exit Strategy: Reassess at Rs6,500 if FY2026 yields exceed 2%

Dividend Outlook: No meaningful dividend yield expected until FY2028 due to ongoing fleet expansion

Bottomline: IndiGo as the Cornerstone of Indian Aviation

IndiGo’s structural advantages—market leadership, operational efficiency, and a robust order book—position it as the preeminent play in India’s aviation sector. The supply-demand imbalance, far from being a temporary phenomenon, is expected to persist for several years, providing a sustained tailwind for IndiGo’s earnings and valuation. Kotak Institutional Equities’ BUY recommendation and Rs6,700 target price reflect a high conviction in the airline’s ability to deliver superior returns for investors.