By Admin 
- Crude oil prices or weak rupee risk.
ATF Tax Update: A very good news has come out for the Indian aviation sector. Indian Airlines have got a big relief after Delhi and Maharashtra governments reduced the tax on aviation fuel (ATF) to 7%. According to financial institution HSBC, this decision will lead to huge savings of up to ₹ 1,500 crore for airline companies. Along with this, the Maharashtra government has directly reduced the VAT on aviation fuel from 18% to 7%. This decision is very significant because airports like Delhi, Mumbai and Nagpur handle about 37% of the total domestic air traffic of the country.
Airlines will get big benefits
The country’s largest airline, IndiGo (InterGlobe Aviation) is going to get the biggest benefit of this tax cut. According to HSBC estimates, IndiGo can make direct savings of ₹ 1,200 crore to ₹ 1,500 crore in its fuel bill. Similarly, Air India will also get a huge relief of around ₹800 crore to ₹1,000 crore. Apart from this, Akasa Air with new fleet may save ₹200 crore to ₹300 crore and SpiceJet which is facing financial crisis may save ₹100 crore to ₹200 crore.
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Share Rating and Market Outlook
HSBC has maintained its ‘Buy’ rating on IndiGo shares and has set its target price at ₹5,210, which represents an upside of about 21% from its current price. On the other hand, considering the internal financial condition of SpiceJet, it has been given a ‘Reduce’ rating and its target price has been kept at ₹5.30. Market analysts are now waiting for IndiGo’s upcoming fourth quarter results and the ‘Analyst Day’ to be held in June, where the company will unveil its future plans.
Amidst its good news, HSBC has warned that even though the governments have reduced the taxes, but if the prices of crude oil increase in the international market or the Indian Rupee weakens against the dollar, then this relief may be less. For example, if jet fuel prices increase by even just 5% globally, IndiGo’s operating profit (EBITDA) could fall by 11.1%. Similarly, a fall of just Re 1 in the rupee against the dollar can give a blow of about ₹ 450 crore to IndiGo.
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