Saturday, August 12, 2017

What makes SpiceJet a draw: Turnaround story, passenger growth and valuation

SpiceJet, from the brink of bankruptcy, has navigated well in the skies over the last few quarters. The company has posted a decent set of numbers for the quarter ended June 2017 with significant growth in the operating revenues and an improvement in the load factor. However, the EBITDAR (earnings before interest, tax, depreciation, amortization and lease rental) margins was marred by higher fuel prices and maintenance charges. We like the company on the back of its turnaround and multiple growth drivers. Additionally, the relatively undemanding valuation is an additional draw.

Revenue from operations witnessed a growth of 23 percent (YoY) led by an increase in volume (12.2 percent) and supported well by an increase in yield (4 percent). Additionally, the load factor witnessed a growth of 90bps over the same quarter last year.

The company, however, witnessed a decline of 600bps (YoY) in EBITDAR margin. The decline was attributed to the rise in fuel prices, and aircraft maintenance cost that were partially offset by the reduction in the other expenses.

EBITDA margin was down by a more respectable 100bps, supported by the reduction in the aircraft lease rentals.
India is witnessing double-digit domestic passenger growth for the last 35 months. With domestic load factor above 85 percent, Indian carriers look set to fly high. The industry is navigating smoothly on the back of benign fuel prices and increase in middle-class affluence. In this environment, SpiceJet is well placed to capture the opportunities unfolding in the sector.

SpiceJet currently has a fleet of 55 aircraft and its capacity as measured by ASK (Available Seat Kilometres) has increased by 18 percent (YoY) in this quarter. The company has indicated that it plans to increase its fleet size to 61 aircraft by the end of this fiscal. Additionally, it plans to add 9 Boeing 737s and 6 Q400s in the year 2018. The company has placed a huge order of 205 Boeing planes and placed an additional order for 20 (737 MAX 10) planes.
11/08/17 Nitin Agrawal/Moneycontrol