No more flavour in spice… • SpiceJet :: ICICI Securities, link

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No more flavour in spice…
• The recent meeting of SpiceJet officials and DGCA has concluded
with only a minor relief of a further 10 days extension. However, as
cited earlier, significant fund infusion is a must in order to keep the
company afloat, which, we believe, looks tough, at present
• While ATF prices have cooled off over 20% in the past few months,
the company has been unable to reap the benefits of the same due to
its poor financial condition
• Till date, SpiceJet has reduced flights across its network from 332
daily to 239 from September 1 till date, according to latest official
figures. It has cancelled 1,861 flights till this month end, which has
also affected its brand image. The airline has now been put on a cash
and carry mode by AAI and oil marketing companies
• With three consecutive years of net losses and mounting outstanding
dues of over | 2,000 crore, it needs at least | 1,000 crore immediately
to keep it off the ground. Given this backdrop, amid high uncertainty
over the funding, we suspend our coverage on the company and
recommend that investors exit the stock
Unfavourable macro, fleet expansion lead to high net worth erosion…
Although SpiceJet (the third largest player) has succeeded in increasing
its market share from 12.9% in FY09 to 18.1% in FY14 by keeping prices
low and through fleet expansion, a high cost environment led by currency
weakness coupled with a demand slowdown in the past two years led to
heavy losses (FY13 loss - | 191 crore, FY14 loss - | 1003 crore). While low
ticket prices (through offering of massive discounts) have helped the
company to keep its market share healthy, sharp weakness in the
currency vs. the dollar (nearly 75% of total operating costs are linked to
the dollar) has led to higher losses over the past two years.
Market dynamics have improved over past three months…
With the fall in ATF prices (accounting for over 45% of operating costs) of
over 20% in the past two months, the operating dynamics have
improved. However, the company has been unable to reap the benefit of
the same due to poor financial conditions. Till date, SpiceJet has reduced
flights across its network from 332 daily to 239 from September 1 till date,
according to the latest official figures. It has cancelled 1,861 flights till this
month end, which has also affected its brand image.
…key challenge now to infuse funds to run business smoothly
Given the company’s negative net worth of over | 1000 crore and
outstanding dues of over | 2,000 crore, funding the operations, going
forward, would remain a key cause of concern for the company. Although
the government has allowed the company to book tickets in advance
beyond a month (till March-15), the recent massive cancellations of flights
has impacted its brand image severely.
High uncertainty over revival; recommend exit
Fixing working capital issues remains a key challenge for the company in
order to take advantage of a favourable environment. Although the
promoter infused additional funds to the tune of | 548 crore over the past
three years, an adverse environment led to a sharp erosion in their net
worth. Given the limited funding options, raising additional capital to the
tune of | 600 crore looks highly challenging. Given this backdrop, amid
high uncertainty over the funding, we suspend our coverage on the
company and recommend that investors exit the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_SpiceJet_EventUpdate_Dec14.pdf