It has been a dramatic climb from a nosedive for the Spicejet stock. Since a near brush with bankruptcy in late 2014, shares of the low cost carrier are now quoting at their highest level in twelve-and-a-half years.
The latest trigger for investors to chase the stock higher has been the permission for the airline to participate in the government's ambitious Udan (Ude Desh ka Aam Nagrik) scheme.
This is more of a sentiment driver though. The benefits from the Udan scheme can only be determined when it kicks-off later this year and the demand on these routes can be evaluated.
A combination of low crude prices and strong passenger growth has improved sentiment for the aviation sector in general over the last year. But Spicejet has been the clear outperformer by miles.
"We believe that SpiceJet should command higher multiples, as the growth story backed due to strong leadership, robust load-factors and consistent market share gains is very impressive," said Aditya Jaiswal of SMIFS. Jaiswal has a price target of Rs 156 for the stock, which is assuming a price earning multiple of 14 times expected earnings in FY19.
Since founder Ajay Singh taking control of the company in late 2014, the stock has risen nearly 9 times.
SpiceJet has been the top pick for various analysts and market experts of late. However, they are now beginning to question if the stock has already reached its cruising altitude?
Considering the strong passenger traffic growth in February and SpiceJet's capacity utilisation of around 94 percent, Spicejet's profitability is expected to increase, said an analyst.
"However, there will be more clarity on yields once we get to see if SpiceJet passes on the benefits of low crude prices to customers or not. Expect better yields if fares remain unchanged," said another analyst.
Most analysts are positive on the stock, but remain slightly cautious since it has rallied 38 percent in March alone. At Monday's closing price of Rs 103, the stock is just about 10 percent away from its peak of Rs 115 seen in September 2005, when Ajay Singh first acquired the company.
"The recent rally in the aviation sector might lead to some correction in the near term but our view remains intact that there is significant upside potential in the stock," says Jaiswal.
Experts also have their eyes on the ongoing dispute between the Marans and Ajay Singh. They feel that investors, who have the guts to hold onto this stock for a little while longer stand to gain from this row.
"The issuance of stock warrants to Kalanithi Maran and his Kal Airways remains the only biggest trigger today for SpiceJet. If this is resolved, the stock can easily rally a further 20-30 percent," said an analyst.
In June 2010, Sun Group boss Kalanithi Maran took control of the airline by picking up a 38 percent stake and then increasing it to 53 percent over the next few years. But Spicejet ran up huge losses, causing Maran to sell the company back to Ajay Singh in 2014.
The tie up between Ajay Singh and the Marans did not end in good terms. The compensation for Kalanithi Maran after his exit is still under dispute with a courtroom battle that has been going on for more than a year.
However, a resolution of this case does not seem to be in sight for now.
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