Buy SpiceJet; target of Rs 34: GEPL Capital

GEPL Capital is bullish on SpiceJet and has recommended buy rating on the stock with a target of Rs 34 in its June 01, 2012 research report.

“SpiceJet Ltd (SpiceJet) reported a 46.7% Y-o-Y growth in revenues to Rs11.1 bn driven by a 15.8% Y-o-Y growth in RPKM (demand) and 26.6% Y-o-Y growth in yields (revenue/RPKM). The capacity grew as the average fleet size rose to 37.1 in Q4FY12 vs 26.3 in Q4FY11. Higher ATF prices led to fuel cost rising by 57.2% Y-o-Y (in-line with our estimates) while staff cost and airport maintenance expenses grew by 95% and 109% respectively over last year with the higher capacity on-board. The company hence reported an EBITDAR loss of Rs280 mn in Q4FY12 (EBITDAR profit of Rs652 mn in Q4FY11) and an EBITDA loss of Rs2.0 bn in Q4FY12 (EBITDA loss of Rs668 mn in Q4FY11). With the purchase of Bombardier aircraft into its fleet, depreciation expenses rose 5x to Rs125 mn and interest cost rose 3x to Rs180 mn in Q4FY12 as compared to the same period last year. This resulted in a net loss of Rs2.49 bn in Q4FY12 vs loss of Rs586 mn in Q4FY11.”

“The passenger load factor (PLF) declined by to 74.4% as the capacity (ASKM) grew 26% Y-o-Y with fleet addition. The average fleet size rose to 37.1 in Q4FY12 as compared to 36.7 in Q3FY12 and 26.3 in Q4FY11. However, given the faster turnaround of the lower capacity Bombardier aircraft the block hours rose to 11.49 hours in Q4FY12 vs 11.02 in Q4FY11 and 11.02 in Q3FY12. Despite the stark rise in fuel cost led by higher ATF prices, the yields improved 26.6% Y-o-Y and 0.7% Q-o-Q to Rs4.10. The higher yields helped partially negate the rise in fuel. However, non-fuel cost per ASKM rose to Rs1.43 in Q4FY12 vs Rs1.09 in Q4FY11. SpiceJet was able to increase its market share to 15.5% in FY12 as compared to 13.5% in FY11 due to the addition of Bombardier aircraft. The purchase of these aircraft should result in higher depreciation and interest outflow for the company over the next few years. However, the debt position of SpiceJet is relatively far better than its other listed peers which according to us is a clear advantage for growth.”

“SpiceJet with a market share of 15%.5 has a market cap of Rs12.4 bn valuing the Indian Domestic Aviation industry at a mere ~Rs80 bn. We believe with the strong growth in passenger traffic and a greater pie for LCCs, the company should attract a greater value in the future. SpiceJet is currently trading at 9.6x FY13E EV/EBITDAR and 6.2x FY14E EV/EBITDAR. We hence maintain our BUY rating on SpiceJet and upgrade our target price to Rs34.2/share. The target price is based on 6.4x FY14E EV/EBITDAR multiple, at a premium to Asian LCCs and but a discount to Jet Airways due to its operations surrounding only the LCC model,” says GEPL Capital research report.  

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