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SpiceJet (SJET)
Others
Disappointing results. Spicejet reported 3QFY11 EBITDA at Rs1.14 bn versus our
estimate of Rs1.34 bn. The underperformance is on account of (1) lower-than-expected
revenues of Rs8.3 bn in 3QFY11, 1.25% below our estimate, and (2) total expenditure
at Rs7.16 bn came 1.67%—higher than our estimates led by higher staff cost and other
operating expenditure. We are reducing our estimates and retaining our BUY rating
with a target price of Rs85 (Rs115 previously).
Disappointing results – Key highlights
Spicejet reported 3QFY11 revenues of Rs8.30 bn (+29.3% yoy; +32.2% qoq) versus our
estimates at Rs8.40 bn on flattish yields (revenue per RPKM) qoq. This is a significant negative
surprise as we had built a 7% increase qoq into our estimates. This has to be seen in the
context that yields have been flat in 3QFY11, which is seasonally the strongest quarter as
compared to 2QFY11—the weakest quarter. We would need to get clarifications from the
management regarding the reasons for the same. Underperformance on the yields front has
been cushioned somewhat by (1) ASKMs coming in 3% higher than our estimates, and (2) PLF
coming in 1.8% higher than our estimates.
Total cost came at Rs7.18 bn (+33% yoy; +15% qoq) versus our estimates at Rs7.06 bn, led by:
(1) Staff costs which came at Rs608 mn versus our estimates at Rs530 mn. The company had
increased the employee count in the quarter in anticipation of capacity additions from
December. Going forward, the employee cost would normalize as the new capacity comes
online, and (2) Other operating expenses came in at Rs1.24 bn versus our estimates at Rs1.16
bn on account of one-off maintenance expense of ~US $2 mn, which would be reimbursed by
the lessor in the coming quarters.
Reducing our estimates – maintain BUY with a target price of Rs 90 (Rs115 previously)
We are reducing our earning estimates to factor in (1) lower yields—we have tempered our yield
assumptions by ~2% for FY2011E to factor in weak 3QFY11 results, (2) Rupee depreciation—we
are building in Rs/$ at 45.5 and 45.5 versus Rs44.5 and Rs44 earlier for FY2012E and FY2013E,
respectively, and (3) We are building ~$90/bbl and $93/bbl crude price Vs $81/bbl and $85/bbl
earlier in FY2012E and FY2013E, respectively. We maintain our BUY rating as we are still positive
on the future prospects of the industry given that we expect favorable demand-supply economics
in the industry to continue for the next two years led by capacity additions which would at best
keep pace with the growth in demand. Also, the recent correction in the sector/market would
delay the capital raising plans by the major players, which would further delay capacity additions.
Air India playing a spoilsport – 4QFY11 yields to be under pressure
Air India has dropped ticket prices across the board in a bid to gain market share. Some part
of this reduction is also due to the fact that 4th quarter is a seasonally weaker quarter as
compared to the 3rd quarter. This has been a surprise to us as we were not expecting the
player with the weakest cost position to take a lead in reducing prices in a seasonally weak
quarter. At this point of time we are unable to comment on whether Air India will persist
with its lower pricing in the future or not. But this move by Air India would reduce the ability
of the airlines to pass on higher costs led by rupee depreciation and higher oil prices in the
4QFY11.
Change in estimates
We are reducing our earning estimates to factor in: (1) Rupee depreciation: We are building
in Rs/$ at 45.5 and 45.5 versus Rs44.5 and Rs44 earlier in FY2012E and FY2013E,
respectively. (2) We have also tempered down our yield assumptions by ~2% for FY2011E to
factor in weak 3QFY11 results. We maintain our BUY with a target price of Rs85.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
SpiceJet (SJET)
Others
Disappointing results. Spicejet reported 3QFY11 EBITDA at Rs1.14 bn versus our
estimate of Rs1.34 bn. The underperformance is on account of (1) lower-than-expected
revenues of Rs8.3 bn in 3QFY11, 1.25% below our estimate, and (2) total expenditure
at Rs7.16 bn came 1.67%—higher than our estimates led by higher staff cost and other
operating expenditure. We are reducing our estimates and retaining our BUY rating
with a target price of Rs85 (Rs115 previously).
Disappointing results – Key highlights
Spicejet reported 3QFY11 revenues of Rs8.30 bn (+29.3% yoy; +32.2% qoq) versus our
estimates at Rs8.40 bn on flattish yields (revenue per RPKM) qoq. This is a significant negative
surprise as we had built a 7% increase qoq into our estimates. This has to be seen in the
context that yields have been flat in 3QFY11, which is seasonally the strongest quarter as
compared to 2QFY11—the weakest quarter. We would need to get clarifications from the
management regarding the reasons for the same. Underperformance on the yields front has
been cushioned somewhat by (1) ASKMs coming in 3% higher than our estimates, and (2) PLF
coming in 1.8% higher than our estimates.
Total cost came at Rs7.18 bn (+33% yoy; +15% qoq) versus our estimates at Rs7.06 bn, led by:
(1) Staff costs which came at Rs608 mn versus our estimates at Rs530 mn. The company had
increased the employee count in the quarter in anticipation of capacity additions from
December. Going forward, the employee cost would normalize as the new capacity comes
online, and (2) Other operating expenses came in at Rs1.24 bn versus our estimates at Rs1.16
bn on account of one-off maintenance expense of ~US $2 mn, which would be reimbursed by
the lessor in the coming quarters.
Reducing our estimates – maintain BUY with a target price of Rs 90 (Rs115 previously)
We are reducing our earning estimates to factor in (1) lower yields—we have tempered our yield
assumptions by ~2% for FY2011E to factor in weak 3QFY11 results, (2) Rupee depreciation—we
are building in Rs/$ at 45.5 and 45.5 versus Rs44.5 and Rs44 earlier for FY2012E and FY2013E,
respectively, and (3) We are building ~$90/bbl and $93/bbl crude price Vs $81/bbl and $85/bbl
earlier in FY2012E and FY2013E, respectively. We maintain our BUY rating as we are still positive
on the future prospects of the industry given that we expect favorable demand-supply economics
in the industry to continue for the next two years led by capacity additions which would at best
keep pace with the growth in demand. Also, the recent correction in the sector/market would
delay the capital raising plans by the major players, which would further delay capacity additions.
Air India playing a spoilsport – 4QFY11 yields to be under pressure
Air India has dropped ticket prices across the board in a bid to gain market share. Some part
of this reduction is also due to the fact that 4th quarter is a seasonally weaker quarter as
compared to the 3rd quarter. This has been a surprise to us as we were not expecting the
player with the weakest cost position to take a lead in reducing prices in a seasonally weak
quarter. At this point of time we are unable to comment on whether Air India will persist
with its lower pricing in the future or not. But this move by Air India would reduce the ability
of the airlines to pass on higher costs led by rupee depreciation and higher oil prices in the
4QFY11.
Change in estimates
We are reducing our earning estimates to factor in: (1) Rupee depreciation: We are building
in Rs/$ at 45.5 and 45.5 versus Rs44.5 and Rs44 earlier in FY2012E and FY2013E,
respectively. (2) We have also tempered down our yield assumptions by ~2% for FY2011E to
factor in weak 3QFY11 results. We maintain our BUY with a target price of Rs85.
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