Stock Market Result Update on SpiceJet for 1QFY2012

Stock Market Result Update on SpiceJet for 1QFY2012 with a Neutral recommendation.

SpiceJet reported its 1QFY2012 numbers. Net sales grew by 31.8% yoy to `933cr (`759cr). EBITDA margin came in at negative 8.5% (+8.3%). At the EBITDA level, the company witnessed a loss of `80cr. Consequently, the company reported net loss of `72cr. We remain Neutral on the stock.

Strong top-line growth, while margin declines: SpiceJet reported strong growth of 31.8% yoy on the back of capacity additions during the year. EBITDAR margin declined by 1,621bp yoy to 5.6% and EBITDA declined by 1,680bp yoy to negative 8.5%, 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, which were reducing prices to increase load factors and gain market share. The company registered a loss of `72cr compared to profit of `55cr in 1QFY2011, a decline of 230.3%, largely due to lower EBITDA margin.

Outlook and valuation: SpiceJet currently has a fleet of 30 aircrafts and will add another two Boeing aircrafts, which will take its Boeing capacity to 32 aircrafts by FY2012. The company will also add 11 Bombardier aircrafts by the end of FY2012, starting from September this year.  In FY2013, the company will further add five Boeing aircrafts 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 39.4% CAGR to `5,703cr 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.