SpiceJet’s Rs 58.9-crore profit in Q2FY17 surprised positively as sustained yield pressure in a lean quarter had kept expectations muted.
SpiceJet’s (SJ) Rs 58.9-crore profit in Q2FY17 surprised positively as sustained yield pressure in a lean quarter had kept expectations muted. The 3% y-o-y yield dip was much lower than that reported by peers. Key quarter highlights were: Dip in non-fuel costs driven partly by an increase in average stage length and renegotiation with vendors; and fall in aircraft lease rentals on conversion of wet to dry lease and pricing rationalisation.
While operating parameters and yield/cost management continue to be healthy, balance sheet remains vulnerable to near-term liability risk arising from the HC order, amidst settlement of past dues. Factoring in a resilient Q2FY17, we retain buy with revised TP of Rs 91 (Rs 87 earlier).
SJ’s passenger yields dipped 3% y-o-y, resulting in pax revenue growth of 35% on 39% volume (RPK) spurt. While fuel cost continued to remain benign (CASK of INR1.09/ASKM versus Rs 1.17 y-o-y), significant cost rationalisation in non-fuel CASK helped the company post improvement in Ebitdar margin to 22.7% from 16.5% y-o-y—partly aided by 5% y-o-y rise in stage length. Further, on converting wet lease aircraft to dry operating lease, SJ’s lease rent/aircraft fell sharply, reducing total rental outgo (down Rs 50 crore q-o-q) despite raising the fleet size during the quarter. Thus, PAT at Rs 58.9 crore was significantly better than our Rs 25-crore loss estimate and Rs 41.6-crore loss (adjusted for Rs 65.4 crore of write back) posted in Q2FY16.
At CMP, the stock trades at 6.3x FY17E and FY18E EV/Ebitdar, respectively. We value the stock at 7.5x FY18E EV/Ebitdar (assuming dilution from impending warrants issue). We maintain ‘buy’ with target price of Rs 91.