Hold SpiceJet; target of Rs 13: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com`s research report on SpiceJet“SpiceJet’s Q1FY15 revenues came in flat YoY at Rs 1678.6 crore (Idirect estimate: Rs 1772.4 crore). The growth was lower due to 8.4% YoY reduction in capacity while the load factor improved sharply to over 81% vs. 69% in Q4FY14. With lower-than-expected growth in revenues, the operating loss came at Rs 59.6 crore vs. our expected operating loss of Rs 35.4 crore. Net loss for the quarter stood at Rs 124.1 crore (vs. I-direct estimate: Rs 86.9 crore). For the full year, we expect the company to report a net loss of Rs 304 crore vs. net loss of Rs 1003 crore last year.” “Despite the slowdown in passenger traffic growth witnessed over the past two years, we believe significant growth opportunities exist for the aviation sector in India due to the current low penetration of air travel. As per the latest data, domestic pax per head in India (i.e. ~51 per 1000 population) is significantly lower than China and the US. Hence, we expect strong growth in penetration of air travel over the next five to seven years, which will be mainly driven by the sustained growth of per capita income, increased affordability accorded by healthy competition and potential upgrading by the vast user base of Indian Railways. Although SpiceJet (third largest player) has succeeded in increasing market share from 12.9% in FY09 to 18.1% in FY14 by keeping prices low and through fleet expansion, the high cost environment led by currency weakness coupled with demand slowdown in the past two years have led to heavy losses (FY13 loss - Rs 191 crore, FY14 loss - Rs 1003 crore). Since aviation demand is very price sensitive, we believe the sustainable growth is possible only through cost optimisation. Dollar is also one of the influencing factors as nearly 75% of total operating costs are linked to the dollar. Hence, we believe strengthening of the rupee would aid in a significant reduction in costs over the next two to three years.” “Given the better profitability of international routes, we expect SpiceJet to keep on adding new overseas routes to its kitty, which currently has ~10% share in total revenues. Further, we believe, strengthening of the rupee against the dollar would play a key role in margin expansion, going forward. However, maintaining caution on the aviation space, given the rise in the competition especially in the domestic segment, we revise our target price downwards to Rs13/share with a HOLD rating on the stock (i.e. 0.3x FY15E EV/sales). Any strategic tie-ups with foreign carriers will remain key upside risks to our call,” says ICICIdirect.com research report. 

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