SpiceJet- Riding the demand wave; Buy:: BofA ML

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SpiceJet Ltd
Riding the demand wave; Buy
�� Raise PO on strong momentum
Post strong 2QFY11 results, we raise our EBITDAR estimates by 3%/12% for
FY11E/12E on (a) raising traffic assumptions for FY11/12 by 2% to 8%, (b) raising
yields assumption for FY11/12 by 2% to 4% and (c) load factor assumptions for
FY11/12 raised by 1%. To factor this strong growth, we raise our PO to Rs107
(from Rs91) on a similar target multiple of 8X FY12E EV/EBITDAR.



2QFY11: Results beat estimates on strong yields
In a seasonally weak quarter, SpiceJet reported net profit of Rs101mn in Q2FY11
compared to loss of Rs1bn in 2QFY10. This was ahead of our estimates of a loss
of Rs480mn. Operating revenues at Rs6.3bn (+40% YoY) was 7% ahead of
BofAMLe. This was largely due to better than expected growth (+19% YoY) in
yields. Despite a seasonally weak quarter, yields showed just 2% sequential
decline. EBITDAR margins at 17.2% were ahead of our estimate of 6.5%.
Future capacity addition plan unveiled

SpiceJet has 6 deliveries of B737 scheduled until FY12 (roughly 1 each quarter).
Company is additionally expected to get 3 more B737s by end of FY11. SpiceJet
has further started negotiations with Bombardier to get up to 30 aircrafts starting
from mid-FY12. With this, coupled with the earlier Boeing order of 30 aircrafts,
SpiceJet has tied up its fleet expansion plans for the next 5-7 years. This will
enable SpiceJet to capture the strong domestic demand.

Look out for strong Q3 on strong traffic and yields
The coming holiday season would enable the industry to clock strong seat factors
on an expected 12%-15% higher yield. The coming of new capacity would enable
SpiceJet to grow faster than the market and gain market share.