Warrant issue, Brent crude key for SpiceJet:HDFC Securities

SpiceJet's net profit more than tripled to Rs 73.19 crore in the three months to March as higher income from operations helped the no-frills carrier remain profitable for the fifth straight quarter.

The carrier had a net profit of Rs 22.52 crore in the year-ago period. In a release, SpiceJet said the net profit stood at Rs 73.19 crore after taking a "one-time expense of Rs 173 crore towards stabilising and improving the reliability of its fleet".

Rupin Shah, Research Analyst with HDFC Securities said two things will weigh on the airline’s stock price. One would be the High Court decision on the issue of stock warrants in SpiceJet to Kalanithi Maran and Kal Airways. If the court decides in favour of Maran, then there will be a dilution of shareholding in the company, he said.The second key factor to watch out for would be Brent crude prices. In the fourth quarter of FY16, the company was benefitting from lower crude prices, but the scenario will change going forward as there could be a hike in crude.Below is the verbatim transcript of Rupin Shah’s interview with CNBC-TV18's Sonia Shenoy and Latha Venkatesh.Sonia: The margins and the bottom-line was below our own expectations because of higher other expanse and the onetime expense they had to bear. But how did you read into the numbers?A: The results were actually broadly in line with our expectations as far as the topline is concerned. So, there were various adjustments and if you see the bottom-line, the adjusted profit after tax (PAT) after the various adjustment these are around Rs 150 crore. So, we were expecting it slightly higher around Rs 190. But the results and performance of the management is quite satisfactory. So, we were expecting the turnaround process that will actually deliver the benefit in long term. So, this was a part of the strategy actually.Latha: But the operating margins at 2.8 don't worry you?A: Actually one should not compare the operating performance.Latha: Per se 2.8 doesn't look like an extraordinarily good performance at a time when actually fuel costs are low. When in the coming quarter the fuel costs will be definitely higher than what it was in January-March quarter, then what happens to the margin?A: There was around Rs 150 crore adjustment in the maintenance expenditure. So, the operating performance is not comparable. Once you look at the adjusted PAT number for this quarter even the year-on-year (Y-o-Y) performance was not comparable because there was an ownership change in last year same quarter. So, if you see operating performance this time there was around nine percent increase in ASKM and 10 percent increase in RBKM and the on time performance has improved around 90 percent and they have gained slight market share this quarter. So, the operating performance is really good for this particular quarter. So, from now onwards the price movement will entirely depend upon the ongoing high court decision on warrant issue that is the case between Maran and Ajay Singh's SpiceJet.Secondly, currently the brand is trading at slightly higher range around USD 50. So, in Q4 the company was getting the benefit of lower crude price around USD 36-37/barrel. Now the entire scenario will change with high crude oil price and the third thing I want to highlight is management restructuring plan. So, continuously they are working on the restructuring plan and they were negotiating with lessors.Sonia: Everything is good at a price and SpiceJet has rallied from Rs 18 all the way to Rs 83. Given that it has become a bit expensive now do you think that in the very near term we could see some pressure on the stock?A: According to us the price is trading at its fair value because since our initiating price of around Rs 69 it rose around 20 percent within a month. Considering the high product price the entire price movement will depend upon high court decision and Brent crude oil price.Latha: If it is a Maran victory in the courts the stock takes a hit, there will be equity dilution?A: Yes, right. Because there is a 32 percent dilution if the warrant will be converted into equity shares.