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SpiceJet – 2QFY2011 Result Update
Angel Broking maintains a Neutral on SpiceJet.
SpiceJet has reported strong 2QFY2011 numbers. Net sales grew 39.9% yoy to
`628cr (`449cr). In 2QFY2011, the company registered EBIDTA margin of 0.6%
(-24.9%) and EBIDTA of `3.6cr from `118cr loss in 2QFY2010, mainly on
account of increase in passenger traffic and better operational efficiency. As a
result, the company reported net profit of `10cr for the quarter from a loss of
`101cr in 2QFY2010. We remain Neutral on the stock.
Overall strong growth: SpiceJet reported a growth of 39.9% yoy to `628cr
(`449cr) mainly on the back of improving economic conditions and lower
capacity addition in industry, which resulted in lesser competition compared to the
previous year. EBITDAR margin came in positive at 17.2% yoy compared to
negative 3% in 2QFY2010. The company reported OPM of 0.6% (-24.9%) for the
quarter. The company registered substantial net profit to `10cr compared to loss
of `101cr in 2QFY2010, which indicates signs of the good things to come in the
ensuing quarters.
Outlook and Valuation: SpiceJet is well placed to service future demand with a
current fleet of 22 aircraft and planned expansion of six more by end FY2012.
Over and above this, SpiceJet has also ordered 30 new planes from Bombardier
Inc. of Canada of which we conservatively expect it to add 4 planes of the 30 in
FY2012 and of the balance one aircraft would be added every quarter going
ahead. With the company adding new aircraft, we have revised our numbers
upwards. We expect net sales to post 25% CAGR to `3394cr (`3,287cr) and net
profit to post 122% CAGR over FY2010-12 to `302cr (`293cr). At current levels,
the stock is trading at 11.8x FY2012E earnings. We remain Neutral on the stock.
Investment Rationale
Load factor to remain healthy: Driven by huge losses, most airlines reduced fleets
and no new capacities have been added since FY2009. With full cost carriers
(FCCs) like Air India and Kingfisher still registering huge losses, and Jet Airways
barely breaking even, we expect negligible fleet addition over FY2011-12. But,
demand bounced back sharply in FY2010 and low-cost carriers (LCCs) have been
reporting 80%+ load factor. Going ahead, given that demand is expected to
outpace supply, the load factor for the industry is expected to remain around 77%
for FY2011E.
Higher load factor to increase profitability: With the Aviation industry characterised
by very high operating leverage, an improvement in the load factor is expected to
drive a substantial spurt in profit. With 88% (76% in 1QFY2010) load factor,
SpiceJet's net profit shot up to `10cr in 2QFY2011 v/s `101cr loss in 2QFY2010.
Additionally, aided by a strong fleet addition (25% CAGR over FY2010-12E), we
expect the company’s net profit to post 122% CAGR over the period to `303cr.
Increasing fleet and strengthening Balance Sheet: SpiceJet currently has
22 aircraft and is one of the few airlines that will expand its fleet size in the coming
years. It is expected to add another six aircraft by FY2012 - two in FY2011 and
four in FY2012. Over and above the old delivery schedule, the company has
ordered 30 new planes from Bombardier Inc. of Canada. Conservatively, we
expect four planes of the 30 to be added in FY2012 and thereafter one in each
quarter going ahead. The company has also placed order for another 30 aircraft
from Boeing, which will be delivered post 2014 onwards.
SpiceJet is expected to build strong cash reserve - `535cr as on FY2011E and
`864cr by FY2012E. In a worst-case scenario, even if the company witnesses a
load factor of just 50% (lowest load factor till date is of 67% in FY2009), it would
have enough cash to sustain its operational expenditure for seven months without
diluting any equity. Moreover, with FCCBs of US $79.8mn fully converted, the
company’s balance sheet strength has beefed up and net worth would stand at
`742cr in FY2012E.
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