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Indigo-The Stock Is Flying High, Should  You Book Profits In It??

Indigo-The stock is flying high, should you book profits in it??

With the collapse of Jet Airways, Indigo reported its highest ever quarterly profit in Q1FY20. A sharp improvement in cargo performance and healthy growth in revenue from passengers led to a 43 fold jump in net profit which was also aided by softening of jet fuel prices and a firm domestic currency. Net profit grew from Rs. 27crores in Q1FY18 to Rs. 1203 crores this quarter. Revenue increased by 44.7% while their market share increased from 39.7% in January 2018 to 48.1% in June 2019.Truce between Indigo promoters
Rahul Bhatia and Rakesh Gangwal, who together hold a 75% stake in Indigo, have settled their differences over certain issues and have reached some sort of agreement in the board meeting that was held. According to the new board structure –
1. The board will consist of 10members of which Bhatia’s InterGlobe Enterprises (IGE) will nominate 5 including CEO, 4 independent directors will be added and Gangwal will continue to be on the board. IndiGo’s board has reached out to former PepsiCo CEO Indra Nooyi to be an independent director.
2. Henceforth, external advice would be sought for all related party transactions that are worth over Rs 2 crores and a bidding process would be mandatory for those contracts. Any further changes in related party transactions would have to be unanimously approved by the company’s independent directors. This will ensure that neither Bhatia nor Gangwal will be able to amend the RPTs in their favour in future.

While they may have taken steps to resolve certain issues related to expanding the board and related party transactions, the main issue – the shareholder’s agreement that gives Bhatia’s InterGlobe Enterprises Ltd sweeping rights (although both parties have nearly equal shareholding) continues to remain a matter of concern. While Bhatia may have agreed on some concessions, he is in no mood to dilute his shareholder’s rights unless a compelling offer is made from Gangwal

Technical View

Indigo fell vertically on the news of one of the promoters raising  corporate governance issues at the company. The stock fell vertically from the highs of 1600 to 1300 levels. The fall got arrested at the Fibonacci confluence zone of 1300 from where the stock again moved up vertically. Technically V shaped recoveries back to the highs are not sustainable. Second the falling trend line is acting as a stiff resistance for the counter. All the rallies in the counter faded at the trend line. Third the stock is making lower highs which are again negative. The moving averages have converged where the short term moving average is about to give a positive crossover. Fourth a  failure here will mean loads of weakness. The RSI on both the monthly and weekly charts is in the bear  zone of 60-65 and that means one needs to be very alert. On the daily charts the RSI is again oscillating in the bear zone of 30-65 . A break of the first support at 1526 will make the stock very vulnerable. The stock closed below the zone on friday the 2nd August and the slide continued on the first day of  the week. The retest of the support which will now act as resistance will be the best place to sell the counter.

 

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