SpiceJet-Flying Sans Turbulence

Ali On Content / 07 Jun 2010

SpiceJet, formerly known as Modiluft, is one of India’s leading low cost carriers (LCC) in the aviation industry. The company is amongst the first private companies that stepped into the Indian aviation sector. It posted its maiden net profit of Rs 61.45 crore for FY10. The company has a fleet size of 20 Boeing 737-800/737-900ER aircrafts and has an extensive network serving over 19 destinations in India. The airline has one of the best ‘on time’ performances in India of around 82 per cent with a technical dispatch of around 99.6 per cent, thus making it an airline with the least number of cancellations.

SpiceJet has recently been approved to fly to international destinations and they plan to operate night flights to three SAARC destinations viz. Dhaka, Kathmandu and Maldives from July 2010. It will be the third private air carrier in India after Jet Airways and Kingfisher to enter the space. This would reduce the idle time for the aircrafts by around 5 per cent to around 12.5 hours per day per aircraft.

During Q4FY10 the company has witnessed a rise in the number of passengers carried. This amounted to 1.67 million in Q4FY10 as compared to 1.37 million in Q4FY09. The aircraft utilisation per day per passenger has been 12.1 hours per day in Q4FY10, up from 11.2 hours per day in the same period the previous year as compared to 7-11 hours for Kingfisher Airlines and Jet Airways.

SpiceJet has posted an improved market share of 12.6 per cent for the quarter ended March 2010, rising from 10.5 per cent on a YoY basis. The load factor for Q4FY10 at 80 percent has improved from 72 per cent on a YoY basis. The aviation turbine fuel (ATF) has also played an important role as the prices decreased significantly. On June 1, 2010, the oil marketing companies (OMC) slashed the rates of ATF by 7 per cent and this is likely to benefit the company going forward.

On the financial front, the company posted their maiden profit of Rs 61.45 crore for FY10 owing to lower than expected fuel cost and other cost-cutting measures. The topline of the company for FY10 was Rs 2,167.78 crore as compared to Rs 1,689.44, thus showing a growth of 28 per cent from FY09. Recently, the company passed a resolution to raise USD 75 million through any combination of instrument, either locally or abroad.

The fund to be raised is likely to be for the purpose of helping in the part conversion of the FCCBs of WL Ross & Co LLC and also to fund the expansion of its fleet. The shareholding pattern of the company has witnessed a significant change as domestic institutional investors’ stake has risen significantly to 23.46 percent in Q4FY10 vis-à-vis 7.65 percent in Q4FY09. The stock at the current market price of Rs 59 trades at a P/E of 23.13x for its FY10 earnings. Going forward, the stock is likely to trade at a P/E of 15.73x for its FY11E earnings at an EPS of Rs 3.75. The stock can be looked upon for a one year time horizon with a target of Rs 72, with an upside of 26 per cent from the current market price.

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