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SpiceJet Ltd (SJET)
UW(V): No surprises in 3Q12 results, key concerns remain
3Q12 loss driven by higher costs and lower loads, in line
with expectations at the operational level
Outlook – upbeat on demand, but concerns on capacity,
costs and rising debt remain; book value fast eroding
Reiterate UW(V) and maintain TP at INR15, based on 9x
EV/EBITDAR; policy risks key
3Q12 results as expected at the operational level: SpiceJet reported a net loss of
INR393m in 3Q12 (October-December 2011) vs. a profit of INR944m in 3Q11, 21%
below our forecast loss of INR498m and significantly below consensus of INR1.1bn. On a
y-o-y basis, the significantly weaker performance was caused by a 7ppt decline in the load
factor and a 28% increase in unit costs, only partially offset by a 16% rise in unit revenue.
The result was in line with our forecast at the EBIT level. However, a rise in other income
above our forecast and slightly lower-than-expected net interest costs helped to narrow
losses for SpiceJet and rendered losses 21% below our forecast at the reported level.
Lacks earnings and asset support: The better-than-expected yield performance drives
the slight increase in our revenue and EBITDAR forecasts, but we increase our FY12-13
net loss forecasts for SpiceJet mainly to account of higher depreciation, lease and staff
costs. Further, SpiceJet’s fleet is largely leased, so it does not have any assets to support
its rapidly eroding book value.
Reiterate UW(V), maintain target at INR15: We continue to value SpiceJet on its average
one-year forward EV/EBITDAR multiple of 9x (the average that it traded at in September
2008-March 2010). Applying this to our new estimates gives us an unchanged target price of
INR15 (rounded). The slight increases in our EBIDTAR forecasts are offset by increased net
debt level forecasts (including capitalised leases). We maintain our UW(V) rating on the stock.
Upside risks: Policy risk is key. The proposal to allow foreign airlines to own up to a 49%
stake in Indian airlines was agreed upon by key ministers in January 2012 and is now waiting
for cabinet approval. If and when this approval is granted, we believe it will likely be a
potential positive catalyst for the stock. The other upside risks are a fall in fuel prices,
appreciation of the INR versus the USD, and pricing and capacity discipline in the market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SpiceJet Ltd (SJET)
UW(V): No surprises in 3Q12 results, key concerns remain
3Q12 loss driven by higher costs and lower loads, in line
with expectations at the operational level
Outlook – upbeat on demand, but concerns on capacity,
costs and rising debt remain; book value fast eroding
Reiterate UW(V) and maintain TP at INR15, based on 9x
EV/EBITDAR; policy risks key
3Q12 results as expected at the operational level: SpiceJet reported a net loss of
INR393m in 3Q12 (October-December 2011) vs. a profit of INR944m in 3Q11, 21%
below our forecast loss of INR498m and significantly below consensus of INR1.1bn. On a
y-o-y basis, the significantly weaker performance was caused by a 7ppt decline in the load
factor and a 28% increase in unit costs, only partially offset by a 16% rise in unit revenue.
The result was in line with our forecast at the EBIT level. However, a rise in other income
above our forecast and slightly lower-than-expected net interest costs helped to narrow
losses for SpiceJet and rendered losses 21% below our forecast at the reported level.
Lacks earnings and asset support: The better-than-expected yield performance drives
the slight increase in our revenue and EBITDAR forecasts, but we increase our FY12-13
net loss forecasts for SpiceJet mainly to account of higher depreciation, lease and staff
costs. Further, SpiceJet’s fleet is largely leased, so it does not have any assets to support
its rapidly eroding book value.
Reiterate UW(V), maintain target at INR15: We continue to value SpiceJet on its average
one-year forward EV/EBITDAR multiple of 9x (the average that it traded at in September
2008-March 2010). Applying this to our new estimates gives us an unchanged target price of
INR15 (rounded). The slight increases in our EBIDTAR forecasts are offset by increased net
debt level forecasts (including capitalised leases). We maintain our UW(V) rating on the stock.
Upside risks: Policy risk is key. The proposal to allow foreign airlines to own up to a 49%
stake in Indian airlines was agreed upon by key ministers in January 2012 and is now waiting
for cabinet approval. If and when this approval is granted, we believe it will likely be a
potential positive catalyst for the stock. The other upside risks are a fall in fuel prices,
appreciation of the INR versus the USD, and pricing and capacity discipline in the market.
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