SpiceJet - Earnings improve, but balance sheet remains stressed - ICICI Securities

We significantly lower our estimate of SpiceJet's (SJet) losses (ex-forex) to Rs11.1bn in FY21E vs Rs22.8bn earlier. This big improvement is a result of better than expected sustainable traffic recovery (weekly daily fliers now have averaged ~245 for two successive months) and ancillary revenue momentum. Our estimated revenues are now at Rs58bn / Rs123bn / Rs136bn and PAT at -Rs11.1bn / Rs2.9bn / Rs4.5bn for FY21 / FY22E / FY23E. We value SJet at Rs85 (15x FY23E earnings adjusted for 25% tax rate since it does not pay any tax, which translates to a multiple of 11.25). Maintain HOLD on the stock and target price of Rs85.

- Q3FY21 performance - revenues lower than expected, but costs in-line: Ex-forex, SJet's losses were at Rs1.3bn in Q3FY21 (~Rs8bn for IndiGo). Other income continued to include Boeing compensation of Rs1.4bn (quarterly run rate has remained unchanged). SJet continues to account all compensations in P&L for forex movements. Other income also had Rs308mn in Q3, Rs512mn in 9M towards rental concessions. Freighter and logistics revenues reached Rs3bn in Q3FY21 (Rs2.3bn in Q2FY21). The airline is operating at 72% of pre‐Covid schedule. It has a fleet of 100 aircraft as at Dec'20 with 19 freighters including five wide‐bodied. Versus our earlier estimates, the revenue was low (average fares were Rs4,140 in Q3FY21, lower than Rs4,561 in Q2FY21), but total cost was in-line (lower fuel costs, lower other expenses but higher maintenance and airport charges). Sequentially, finance cost and depreciation have reduced on expected lines (more cargo planes, return of some passenger planes).

- Dedicated Cargo initiative is commendable but growth can slow down with return of belly space. Driven by cargo business, dedicated SpiceJet's ancillary revenue is expected to grow from Rs13bn in FY20 to Rs19bn in FY21E despite 58% drop in ASK. Additionally, SpiceJet also plans to start international cargo operations as well as operate international destinations

- SJet has a competitive cost structure, but balance sheet remains an overhang. SJet's Cost per ASK (CASK), with depreciation and interest expenses, is competitive (average Rs3.71 between FY16-FY20 and Rs6.94 in 9MFY21) vs Rs3.22/5.55 for IndiGo in a similar comparison. SJet's RASK was better than IndiGo's by an average of 9% over FY16-FY20 and 45% in 9MFY21 on account of better PLFs. However, balance sheet remains a big overhang for SJet (net liability, taking all accounted compensations and receivables, is estimated at >Rs20bn).

- Risks include: 1) rising crude prices; 2) Covid-related disruptions or delayed recovery in traffic; 3) delay in, or less than expected, Boeing compensation (SJet has accounted Rs11bn till date); and 4) Possible cash outgo in the former promoter case (currently under Court stay order).

Shares of SPICEJET LTD. was last trading in BSE at Rs.90.65 as compared to the previous close of Rs. 87.7. The total number of shares traded during the day was 974882 in over 6508 trades.

The stock hit an intraday high of Rs. 94 and intraday low of 89.85. The net turnover during the day was Rs. 89166809.

Source : Equity Bulls

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