Stock Market Result Update on SpiceJet for 2QFY2012

Stock Market Result Update on SpiceJet for 2QFY2012 with an Neutral recommendation.

For 2QFY2012, SpiceJet’s net sales grew by 22.0% yoy to `766cr. EBITDA margin came in at negative 30.2%. At the EBITDA level, the company witnessed a loss of `232cr. Consequently, the company reported net loss of `240cr during the quarter. We remain Neutral on the stock.

Strong top-line growth, while margin declines: SpiceJet reported strong growth of 22.0% yoy on the back of capacity additions during the year. EBITDAR margin declined by 2,947bp yoy to negative 12.3% and EBITDA margin declined by 3,081bp yoy to negative 30.2%, owing to higher fuel cost during the quarter. The company could not raise ticket prices as much as fuel cost due to stiff completion from FCC players, who were reducing prices to increase load factors and gain market share. The company registered loss of `240cr in 2QFY2012 compared to profit of `10cr in 2QFY2011.

Outlook and valuation: SpiceJet currently has a fleet of 30 aircraft and will add another two Boeing aircraft, which will take its Boeing capacity to 32 aircraft by FY2012. The company will also add 11 Bombardier aircraft by the end of FY2012, starting from September this year.  In FY2013, the company will further add five Boeing aircraft and four Bombardiers. By the end of FY2013, the total tally would be 37 Boeings and 15 Bombardiers as per current expansion plans. We expect net sales to post a 36.8% CAGR to `5,489cr over FY2011–13. Owing to higher ATF prices and intense competition, we have a cautious view on the sector and, thus, remain Neutral on the stock.