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SpiceJet Ltd
No Respite; Downgrade to
Underperform
„Bleak outlook; lower forecast and cut PO to Rs25
We downgrade SpiceJet to a non-consensus Underperform from Buy, with a PO
of Rs25. We also lower our EBITDAR estimate by 41%/27% over FY12/13 and
are now well below the street. This is on account of (a) hike in ATF price to
US$120/bbl from US$115/bbl, (b) around 2% cut in yields, and (c) 150bp cut in
domestic load factors for FY12E. We believe increasing competitive intensity
among the Indian low-cost carriers (LCCs), share pledges by promoters, and
concern over funding for expansion will likely push the stock to lower levels. Our
new PO of Rs25 is based on down-cycle multiple of 9x FY13E EV/EBITDAR.
Traffic growth matched by a stronger supply
YTD FY12, traffic growth has moderated to below 15% from 18%. We expect the
traffic growth to be 12% CAGR over FY11-13E. However, this would be matched
by a strong supply growth, especially in the LCC segment. We expect supply to
grow by 12-15% over FY11-13E. This would likely (a) lead to lower load factors, &
(b) put pressure on yields.
Yields to be under pressure on increased competition
A large portion of SpiceJet’s traffic growth comes from the price sensitive noncorporate leisure travelers. This, coupled with aggressive capacity addition by the
LCCs, restricts SpiceJet from significantly improving yields despite higher costs.
Additionally, hike in service tax & user development fees at select airports further
restricts yield growth. We expect 3-4% yield growth for SpiceJet over FY11-13E.
Funding concerns, share pledges to add additional pressure
SpiceJet has aggressive expansion plans over the next five years for which it
would be required to pay pre-delivery payments (PDP). It is expected to add c.30
Q400s over the next three years & 30 B737s over FY14-17. Given weak balance
sheet, the firm would be required to raise funds to execute its expansion plans.
Additionally, c.85% promoter pledges would put additional pressure on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
SpiceJet Ltd
No Respite; Downgrade to
Underperform
„Bleak outlook; lower forecast and cut PO to Rs25
We downgrade SpiceJet to a non-consensus Underperform from Buy, with a PO
of Rs25. We also lower our EBITDAR estimate by 41%/27% over FY12/13 and
are now well below the street. This is on account of (a) hike in ATF price to
US$120/bbl from US$115/bbl, (b) around 2% cut in yields, and (c) 150bp cut in
domestic load factors for FY12E. We believe increasing competitive intensity
among the Indian low-cost carriers (LCCs), share pledges by promoters, and
concern over funding for expansion will likely push the stock to lower levels. Our
new PO of Rs25 is based on down-cycle multiple of 9x FY13E EV/EBITDAR.
Traffic growth matched by a stronger supply
YTD FY12, traffic growth has moderated to below 15% from 18%. We expect the
traffic growth to be 12% CAGR over FY11-13E. However, this would be matched
by a strong supply growth, especially in the LCC segment. We expect supply to
grow by 12-15% over FY11-13E. This would likely (a) lead to lower load factors, &
(b) put pressure on yields.
Yields to be under pressure on increased competition
A large portion of SpiceJet’s traffic growth comes from the price sensitive noncorporate leisure travelers. This, coupled with aggressive capacity addition by the
LCCs, restricts SpiceJet from significantly improving yields despite higher costs.
Additionally, hike in service tax & user development fees at select airports further
restricts yield growth. We expect 3-4% yield growth for SpiceJet over FY11-13E.
Funding concerns, share pledges to add additional pressure
SpiceJet has aggressive expansion plans over the next five years for which it
would be required to pay pre-delivery payments (PDP). It is expected to add c.30
Q400s over the next three years & 30 B737s over FY14-17. Given weak balance
sheet, the firm would be required to raise funds to execute its expansion plans.
Additionally, c.85% promoter pledges would put additional pressure on the stock.
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