SpiceJets downward spiral spooks Street, scrip tanks

Written by fe Bureau | Mumbai | Updated: Jul 31 2014, 07:11am hrs
The SpiceJet scrip crashed more than 18% on Wednesday following reports of a deeper financial trouble for the airline that is already running into huge losses.

The low-cost airliner nose-dived to a four-month low of Rs 14, down Rs 2.70 or 16.17% from the previous close, on Wednesday. The stock touched a low of Rs 13.60 with a five-time increase in trading volume. More than 1.485 crore shares were traded on the BSE compared with the average volume of 29.41 lakh shares in the previous five sessions and an average 27.05 lakh shares in the previous 10 sessions.

The fall led to the company issuing a clarification after market hours, stating that the airline is in the midst of resolving the tax issue with concerned authorities. It also assured the company was fully compliant with all the safety regulations. The low-cost carrier owes about Rs 200 crore to Airports Authority of India (AAI) and various tax departments, according to reports. Concerns emerged after airline employees expressed their concern, in a written communication, on not receiving TDS certificates for the purpose of filing tax returns. Its net debt stood at Rs 1,511 crore on March 31.

It was further reported that AAI may stop all credit facilities to SpiceJet if the company is unsuccessful in clearing its unpaid dues. Also, the IT Department could prosecute SpiceJet for non-payment of TDS, leading to speculation its situation was deteriorating in a manner similar to Kingfisher Airlines.

Regulatory body Directorate General of Civil Aviation (DGCA) is also carrying out an engineering audit of SpiceJet after the carrier was facing difficulty in providing equipment to operate some flights.

The way things are progressing, it doesn't look very good. The management needs to give more clarity... promoters need to infuse more equity or the airline needs to find a long-term investor for it to sustain in an environment that is highly unfavourable for the domestic aviation sector, said an analyst with a foreign firm, requesting anonymity.

Analysts also highlighted that banks may not lend any more money to the airline as the sector is going through a challenging phase. Liquidity crunch is a major problem for the company. The only saving grace is if it can get into a JV with another airline or get equity infusion either from the promoters or a strategic investor, said Rashesh Shah, analyst, ICICI Securities.

Analysts said the research coverage of SpiceJet is scarce, but also warned of potential downgrade of company's shares as adverse operating environment has impacted its performance. SR Batliboi & Associates, the airline's auditor, in the FY13 annual report waved a red flag that the company was not regularly depositing undisputed statutory dues including TDS, value-added tax and service tax.

SpiceJet reported a net loss of Rs 321.51 crore for the quarter ended March 2014 due to depreciation in the local currency, general economic slowdown and softening demand. This loss was higher compared to Rs 185.71 crore in the year-ago period. For FY14, SpiceJet's loss was at Rs 1,003.24 crore against Rs 191.07 crore last year.

However, the airline is optimistic about turning itself around. SpiceJet is in the process of transforming itself completely under new management, after one of the most challenging years in its history, the airline said in a release on Wednesday. We intend to see this transformation through to completion, and we have a plan to address the remaining legacy issues and challenges in the coming weeks and months, it added.