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BUY Spice Jet: AnandRathi Institutional Research
Posted On : 2016-01-20 05:18:24( TIMEZONE : IST )
Spice Jet - Flying high; Buy with a target price of Rs 150.
We initiate coverage on SpiceJet with a Buy rating and a price target of Rs. 150. A shuffle in the top management, renewed focus with a revival plan and favourable macro-economic factors make a case for strong growth. With entry barriers to competition, focus by the government and sliding crude prices, SpiceJet is poised to greatly benefit.
Management restructuring to unlock value: In Jan'15 Mr Ajay Singh took the reins of the near-bankrupt company. Under the new management, a slew of measures have been undertaken to revive the company. The focus has been on greater efficiency, revenue management, fleet rationalisation, aircraft utilisation, capacity deployment in key markets, contracts and other costs.
Also, in the short term the company is increasing the number of its aircraft in order to keep up with growth in demand. We believe these factors should result in CAGRs of 17%, 41% and 62% over FY16-18 in, respectively, revenue, EBITDA and PAT.
Favourable macro-economic conditions: Plunging crude-oil prices, a sharper focus by the government, higher disposable incomes, the cost-benefit advantage over the Railways are some of the key factors in the turnaround of the aviation sector.
Balance-sheet turnaround: We expect the operational improvement to result in a positive net-worth and in lower debt by end-FY18.
Valuation. The stock trades at a P/E of 5.5x FY18e and 4.2x FY18e EV/ EBITDA, against Indigo's 12.4x FY18e and 8.6x FY18e EV/EBITDA. We recommend a Buy, with a price target of Rs. 150. We value the stock at 10x FY18e, implying an 83% potential. Risks. Equity dilution, rise in crude oil prices.
Shares of SPICEJET LTD. was last trading in BSE at Rs.71.7 as compared to the previous close of Rs. 71.55. The total number of shares traded during the day was 20225723 in over 49542 trades.
The stock hit an intraday high of Rs. 73.4 and intraday low of 68.1. The net turnover during the day was Rs. 1428782421.
