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SpiceJet Ltd - 3Q marred by higher fuel cost, lower yields
„Cut PO on rising fuel cost
We have cut our EBITDAR estimates by 6%-15% for FY11-13E on account of
(a) hike in average crude assumption by 2%-12% over FY11E-13E, (b) cut in yield
assumptions by 2-4% over FY11-13E. However we have raised our traffic
assumptions by 1%-9% over FY11-13E on account of strong demand. To factor in
the lower EBITDAR we have cut our PO to Rs.91 (from Rs107).
3QFY11: Results disappoint on lower yields
SpiceJet reported net profit of Rs944mn (-13% YoY) in Q3FY11 compared to our
estimates of Rs1.49bn. Operating revenues at Rs8.3bn (+28% YoY) was 8%
below BofA-MLe. This was largely due to lower than expected yields despite
higher fuel costs. Yields were flat sequentially and down 2% on a YoY basis.
EBITDAR margins at 26.5% were below our estimate of 32.5%.
Adding capacity to meet future demand
SpiceJet has aggressive plans to add capacity to capture the strong domestic
demand. It is expected to add 6-7 B737 and 4-6 Q400s (70-seater turboprops) in
FY12. We expect this will enable SpiceJet to show strong traffic growth. However
there may be near term concerns on softness in yields due to (a) lean season and
(b) bunching up of new capacity.
Attractive valuations for strong growth
SpiceJet trades at FY12E EV/EBITDAR of 7.3x, representing a 5%-10% discount
to Jet Airways & other regional peers. We are valuing SpiceJet at a mid-cycle
multiple of 8x EV/EBITDAR FY12E which is similar to Jet at its PO. We expect
SpiceJet to achieve 45% EPS CAGR over FY10-13E.
Key result takeaways
SpiceJet reported 3QFY11 results below our expectations. EBITDAR margin at
26.5% was below our expectations of 32.5%. This was largely driven by flat yields
despite higher fuel cost.
Strong traffic growth…but weak yields
„ Operating revenue was at Rs. 8.3bn, rising sharply by 28% YoY on account
of improving traffic.
„ Load factors at 88% were strong on both sequential as well as YoY basis.
„ Passengers carried during the quarter were at 2.39mn vs. 1.8mn in Q3FY10
and 1.81mn in Q2FY11
„ Yield was the major disappointment during quarter at Rs. 3.46/RPK, showing
a 2% annual drop despite a rise in fuel prices. On a sequential basis, yields
were flat.
Price objective basis & risk
SpiceJet Ltd (MDLFF)
Our PO of Rs.91 is based on 8x FY12E EV/EBITDAR, which is in line with the
regional airlines with similarly high EBITDAR growth in the mid cycle. Downside
risks to our price objective: Rising fuel costs and an increase in competition.
Upside risks would be a decline in fuel prices and faster-than-expected economic
recovery.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
SpiceJet Ltd - 3Q marred by higher fuel cost, lower yields
„Cut PO on rising fuel cost
We have cut our EBITDAR estimates by 6%-15% for FY11-13E on account of
(a) hike in average crude assumption by 2%-12% over FY11E-13E, (b) cut in yield
assumptions by 2-4% over FY11-13E. However we have raised our traffic
assumptions by 1%-9% over FY11-13E on account of strong demand. To factor in
the lower EBITDAR we have cut our PO to Rs.91 (from Rs107).
3QFY11: Results disappoint on lower yields
SpiceJet reported net profit of Rs944mn (-13% YoY) in Q3FY11 compared to our
estimates of Rs1.49bn. Operating revenues at Rs8.3bn (+28% YoY) was 8%
below BofA-MLe. This was largely due to lower than expected yields despite
higher fuel costs. Yields were flat sequentially and down 2% on a YoY basis.
EBITDAR margins at 26.5% were below our estimate of 32.5%.
Adding capacity to meet future demand
SpiceJet has aggressive plans to add capacity to capture the strong domestic
demand. It is expected to add 6-7 B737 and 4-6 Q400s (70-seater turboprops) in
FY12. We expect this will enable SpiceJet to show strong traffic growth. However
there may be near term concerns on softness in yields due to (a) lean season and
(b) bunching up of new capacity.
Attractive valuations for strong growth
SpiceJet trades at FY12E EV/EBITDAR of 7.3x, representing a 5%-10% discount
to Jet Airways & other regional peers. We are valuing SpiceJet at a mid-cycle
multiple of 8x EV/EBITDAR FY12E which is similar to Jet at its PO. We expect
SpiceJet to achieve 45% EPS CAGR over FY10-13E.
Key result takeaways
SpiceJet reported 3QFY11 results below our expectations. EBITDAR margin at
26.5% was below our expectations of 32.5%. This was largely driven by flat yields
despite higher fuel cost.
Strong traffic growth…but weak yields
„ Operating revenue was at Rs. 8.3bn, rising sharply by 28% YoY on account
of improving traffic.
„ Load factors at 88% were strong on both sequential as well as YoY basis.
„ Passengers carried during the quarter were at 2.39mn vs. 1.8mn in Q3FY10
and 1.81mn in Q2FY11
„ Yield was the major disappointment during quarter at Rs. 3.46/RPK, showing
a 2% annual drop despite a rise in fuel prices. On a sequential basis, yields
were flat.
Price objective basis & risk
SpiceJet Ltd (MDLFF)
Our PO of Rs.91 is based on 8x FY12E EV/EBITDAR, which is in line with the
regional airlines with similarly high EBITDAR growth in the mid cycle. Downside
risks to our price objective: Rising fuel costs and an increase in competition.
Upside risks would be a decline in fuel prices and faster-than-expected economic
recovery.
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