SpiceJet - Improved yields lead to positive PAT... - ICICIdirect.com

SpiceJet's operating results for Q1FY14 were much above our estimates both on the topline (up 20% YoY) and the bottomline front. Topline growth of 20% was mainly led by 5% YoY increase in yields per passenger (Rs. 4,278 vs. Rs. 4,068 last year) and 13% YoY rise in passenger traffic with overseas routes making up to ~11% of revenues. On the cost front, fuel cost as a proportion of total revenues declined to 43% vs. 46% in the quarter due to better realisations on international routes and improved efficiencies. Even in the coming quarters, the decision to import ATF will reduce operating costs by ~5% for the company. Other operating costs like airport charges and aircraft maintenance were also only marginally higher. The fleet size increased to 56 during Q1FY14 leading to higher interest and depreciation cost. Lease rentals increased 12% YoY to Rs. 219.8 crore on addition of six Boeing B900. Reported PAT of Rs. 50.6 crore came in as a positive surprise and was due to reduced finance costs (down 20% QoQ). With the increased share in international traffic, we hope the company will keep adding new overseas routes to its kitty. However, the operating environment is expected to remain challenging in the medium term due to weak currency, higher crude prices, rising competition and slowdown in passenger growth.

Improvement in international realisations, increased market share

International revenue accounted for ~11% of SpiceJet's revenues this quarter due to addition in network from three to eight. Also, there was 322% growth in number of passengers and 385% growth in departures, which helped it in revenues YoY growth of 20%.

Cost reduction, international expansion on agenda

We expect SpiceJet to remain ahead of its peers in terms of growth in revenue, by focusing on untapped Indian Tier II cities and profitable international routes through expansion. Its cost reduction efforts such as ATF imports will also drive margins. However, maintaining caution on the aviation space as a whole, we maintain our price target of Rs. 24 (i.e. 0.4x FY14E EV/sales). Any strategic tie-ups with foreign carriers remain a key positive trigger while currency weakness and rise in competition from other carriers also pose a threat to our recommendations. We change our rating on the stock from SELL to HOLD.

Source : Equity Bulls

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