Mumbai: HSBC has slashed target price on SpiceJet and InterGlobe Aviation, parent of IndiGo, as it believes the aviation industry is headed for a big loss in the ongoing financial year.The brokerage has downgraded Spice-Jet to hold and cut its target price by 50.5 per cent to Rs 44.5, against Rs 90 earlier, as it expects tight liquidity to weigh on the airline.
The brokerage has also cut target price on InterGlobe by 11 per cent to Rs 1,015 from Rs 1,145 while maintaining a hold rating.Shares of SpiceJet are down 51 per cent and those of InterGlobe are down 24 per cent since February 19.The aviation industry has come to a halt amid air travel restrictions and drop in demand due to the Covid-19 outbreak, which has compelled Indian carriers to cut capacity.Significant losses are certain as some 40-45 per cent of costs are fixed, said HSBC.Significant cash burn will be inevitable as airlines are expected to report steep losses in the next few quarters.
Government support and effective cost cutting would be key for the airlines survival, said HSBC.The brokerage expects these stocks to remain highly volatile, with pace of recovery after Covid-19 being a bigger concern.