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Spicejet Ltd
Initiation
Overweight
SPJT.BO, SJET IN
Ready to take off
• Initiate with Overweight, PT of Rs115: Our PT implies upside of 40%
from the current share price. SJET is a leading LCC in India with 13.6%
market share in Oct-2010. It is well positioned to benefit from strong
growth in passenger traffic demand, in our view, driven by its strong
balance sheet, efficient operations and lean cost structure. We are adding
the stock to our Asia Analyst Focus List.
• Strong balance sheet to drive market share gains: We expect SJET to
increase its passenger market share from 12.6% in FY10 to 16.7% by
FY12E. SJET is leveraging its strong balance sheet to add capacity and
capture higher share of incremental demand when most of its competitors
are constrained by distressed balance sheets. The strong demand
environment that is aiding yield improvements will drive a 48% CAGR in
earnings and 36% CAGR in EBITDAR over FY10-FY13E, in our view.
• Bombardier fleet to enhance tier II city positioning: Addition of
Bombardier Q400’s will enhance SJET’s non-metro presence. Q-400 78-
seat configuration will also provide cost benefits such as exemption from
airport landing and navigation charges and sales tax on ATF.
• Cost competitiveness provides earnings resilience: SJET’s efficient
operations driven by better seat configuration, low turnaround time, and
higher block hours make it cost competitive. Its operating CASK is 20%-
40% lower compared to domestic listed peers and also compares favorably
with regional LCCs.
• Price target, valuation, key risks: Our Sep-11 PT of Rs115 is based on
9x FY12E EV/EBITDAR, at 13% premium to our target multiple for
JETIN and KAIR. We attribute a premium to SJET over Indian full service
players on account of SJET’s efficient operations, higher growth over the
next two years, strong balance sheet and low cost structure. Key risks
include slowdown in passenger traffic, higher oil prices, INR depreciation
and availability of trained staff for Q-400s.
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