Wednesday, August 12, 2020

Here's why analysts choose IndiGo over SpiceJet for the long haul

New Delhi: India’s largest airline by market share IndiGo – owned by InterGlobe Aviation – has approved to raise Rs 4,000 crore to tide over the liquidity crisis resurrected by Covid-19 pandemic. In contrast, its competitor SpiceJet has been shown a red flag by its auditor, doubting the airline’s continuity as ‘going concern’.

This poles-apart situation of the two airlines, which collectively controlled 69.4 per cent of the aviation market as of June 30, 2020, according to data provided by Directorate General of Civil Aviation (DGCA), has put brakes on the growth story for the sector which was once seen as the world’s fastest growing markets.
According to ICICI Securities, the weekly average daily fliers have increased from 79,000 earlier this year to 391,000 average daily fliers till July. “The number of fliers per departure has increased to 95 in the week ending August 8 vs 90 in the week ending August 1. These are early trends and should improve going ahead at a rate that would depend upon the trajectory of Covid-19 impact,” the brokerage said in a report dated August 10.

Analysts expect SpiceJet’s stock to remain under pressure till it gets financial support, either from the government or by any private investor. Survival of this airline, they suggest, now depends on the airline’s ability to raise funds. They could either wait for the government to announce any fiscal support or could approach private equity investors to infuse funds.
"IndiGo, due to its Numero Uno position and strong balance sheet, will weather the storm. But, under the current circumstances, SpiceJet cannot raise funds like the former did. Government support seems to be the only way out now. Of course, a white knight with deep pockets and confidence in the recovery of the business, can surprise and step in," says V K Vijayakumar, chief investment strategist at Geojit Financial Services.

SpiceJet reported a record net loss of Rs 807 crore in Q4FY20 with RASK (excluding Boeing compensation) down 7.4 per cent. “While market leader IndiGo reported 1 per cent yield growth in the same period, SpiceJet reported 10 per cent decline in yields despite industry leading load factors impacted by increased exposure to intensely competitive metro to metro routes and dual class fleet operations,” says Paarth Gala, research analyst at Prabhudas Lilladher.

12/08/20 Nikita Vashisht/Business Standard

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