SpiceJet Result update: Accumulate at current levels - GEPL Capital

Higher than expected yields result in lower than anticipated losses

- SpiceJet Ltd (SpiceJet) reported a 40.6% Y-o-Y growth in passenger revenues of Rs.11.5 bn driven by a 20.4% Y-o-Y growth in RPKM and 17.6% Y-o-Y growth in yields (revenue/RPKM). The 124% Y-o-Y growth in other operating revenues led to a 41.6% Y-o-Y rise in total income which stood at Rs.11.76 bn.

- Fuel costs rose by 90.1% Y-o-Y (in-line with our estimates) while staff cost and other operating expenses were below our estimates. Driven by higher fuel expenses, the EBITDAR margin declined to 12% in Q3FY12 as compared to 26.5% in Q3FY11. The company reported an EBITDA loss for the fourth consecutive quarter which stood at Rs.190 mn as compared to an EBITDA profit of Rs.1.14 bn in Q3FY11.

- The company reported a standalone net loss of Rs.393 mn in Q3FY12, which was above our estimates led by higher revenues and cost curtailments.

Result Highlights

PLF declined as significant fleet addition was witnessed in the quarter

The passenger load factor (PLF) declined by 770bps Y-o-Y to 80.1% as the capacity (ASKM) grew 32% Y-o-Y with fleet addition. The PLF rose from 64.4% in the previous quarter as Oct-Dec is the peak season for air traffic. The average fleet size rose to 36.7 in Q3FY12 as compared to 30.6 in Q2FY12 and 22.4 in Q3FY11.

Higher fuel costs partially negated by higher yields

With the peak season, yields improved 17.6% Y-o-Y and 15.2% Q-o-Q to Rs.4.07. The higher yields helped negate the 90% rise in fuel cost. Consequently, the fuel expenses as a percentage of sales stood at 50.4%, a sharp improvement from the previous quarter when they stood at 62.4%.

Bombardier fleet to result in higher depreciation and interest outflow going forward

SpiceJet was able to increase its market share to 14.4% in CY11 as compared to 13% in CY10 due to the addition of 7 Bombardier aircraft. The purchase of these aircraft should result in higher depreciation and interest outflow for the company over the next few years. However, the debt position of SpiceJet is relatively far better than its other listed peers which according to us is a clear advantage for growth.

Valuation & Viewpoint

The outlook for the sector remains weak with currency headwinds and high ATF prices. However, any change in FDI policy and reduction of sales tax on ATF can be positive for the entire sector. Moreover the successful inclusion of all 30 Bombardiers within its fleet should result in the company managing to garner a greater market share and capture the growing pie of LCCs in the domestic aviation industry. Consequently we believe the stock has multiple growth triggers and can be accumulated at current levels.

Source : Equity Bulls

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