The momentum in the SpiceJet stock continued on Friday after reports emerged that Ajay Sinha, co-founder of the airline, along with some partners, may bring in investments of R1,300 crore for the troubled budget carrier.
As media reports suggested that the airline may come up with a viable financial plan of revival by Monday, the scrip rallied as much as 20% and closed the session at day’s high of R15.80, up R2.60. Even after this gain, this is not a remarkable level for the stock, given that in the last three weeks, the volatility around it has gone up with an average daily trading range of 12% of the closing price. Since late November, the trading activity on the stock has also gone up with the average 15-day total trading quantity rising from 52.8 lakh shares in November 27 to 199.55 lakh shares as of Friday.
Besides mounting losses of the last two financial years, in the recent quarters, auditors of the company had raised concerns about the capability of the airline to continue its operations. While the stock has remained under pressure since late July when it emerged that the company had delayed tax payments, the last two weeks have been particularly eventful with multiple news reports around SpiceJet’s inability to pay its dues to AAI and OMCs.
The counter has witnessed increased trading interest since the beginning of this month after veteran stock market investor Rakesh Jhunjhunwala’s Rare Enterprise picked up 75 lakh shares or 1.4% stake in the company. This led to a 17% rally in the stock to its highest level in more than a year (R21.25).
However, the euphoria remained shortlived as OMCs and AAI asked SpiceJet to operate on cash and carry, citing respective dues of over R200 crore and R14 crore. As a result, DGCA prohibited the airline from taking bookings for more than a week in advance .
After multiple discussions with airline officials and ministry officials, DGCA has permitted the airline to take advance bookings till March 31, 2015, and the carrier eventually resumed operations on Wednesday evening.
However, the momentum around the stock is likely to continue going ahead given that, amid the cash crunch it faces, the airline, which accounted for 18.1% market share in FY14, is not able to benefit from a plunge in fuel prices. The developments around possible cash infusion would be closely followed as the current promoters (Marans) of the airline who have provided infusionof R548 crore in the last three years have now expressed their inability to provide further liquidity.
In a recent research note, ICICI Securities observed that, amid Spicejet’s negative net worth of over R1,000 crore and outstanding dues of over R2,000 crore, funding the operations, going forward, would remain a key cause of concern for the company.