Mr. Mitul Shah, Head of Research at Reliance Securities
SpiceJet (SPJET) reported revenue of Rs23.1bn (up 2% YoY and up 19% QoQ), 6.3% below our estimate of Rs24.7bn. Passenger RASK increased by 27% YoY in 3QFY23. Yield improvement of 21% YoY resulted into the increase in passenger revenue by 33% YoY. Ancillary revenue grew by 1% YoY in 3QFY23. It reported an EBITDAR of Rs761mn (vs. EBITDAR of Rs2.2bn in 3QFY22 and EBITDAR loss of Rs5.4bn in 2QFY23), vs. our estimated loss of Rs965mn. EBITDAR margin stood at 3.3% (down 663bps YoY and up 3,095bps QoQ), vs. our estimate of (3.9)% due to better yield and tight control on costs. It recorded a net PAT of Rs1.1bn (vs. net PAT of Rs1bn in 3QFY22 and net loss of Rs8.4bn in 2QFY23) including MTM forex loss of Rs1.1bn, vs. our estimated loss of Rs3bn. Higher non-operating income boosted its bottom line despite pressure on EBITDAR margins. Its non-operating income grew by 239% QoQ and 23% YoY due to compensation of Rs3.1bn on account of settlement with aircraft manufacturer on grounded Max aircrafts during the past period. We expect healthy pick-up in aviation traffic over FY23-FY25E on the back of healthy demand for leisure travel in post COVID era. Considering better cost structure ahead on lower fuel prices, contribution of profitable cargo segment, likely strong uptick in aviation traffic with normalised situation, rising yield, likely debt reduction through stake divestment, fund raising triggers, conversion of debt to equity and attractive valuation, we maintain our BUY rating on SPJET, with an unrevised Target Price of Rs61.
Margin Improvement ahead on Lower ATF Prices
SJET has recently increased its focus on profitable cargo segment, which enjoyed 20% EBITDA margin in FY21 and reported net profit of Rs460mn in FY22, despite significantly higher fuel charges. Due to elevated fuel charges, weaker currency led cost inflation and slightly lower than desired load factor, passenger segment was loss making business for most of aviation companies till recent past. However, recent fuel price correction gives bigger relief to the industry. Hence, with firm yields and lower ATF prices, we expect sizable operating margin improvement over FY24 and FY25. Moreover, SJET's contribution from profitable cargo business would aid profitability and would support its financials. With normalising situation, we expect SJET to increase its fleet strength over the next 2 years. We expect company's passenger aircraft to increase from current 45-50 to 65 by FY25-end, which would support healthy RASK growth in FY24 and FY25. Firm yields, contribution from high margin cargo segment and increasing load factor would negate the impact of cost inflation to greater extent and we expect turnaround in FY24E. We expect its EBITDAR margins to improve from -5.1% to 21.4% over FY22-FY25E.
Outlook & Valuation
We expect SJET to report losses in FY23E due to record high ATF prices and lag effect of cost pass on. We expect a strong revival in air passenger traffic over the next 2 years and factor 28% CAGR in ASK over FY22-FY25E (vs. -16% CAGR over FY18-FY21). Considering lower-than-expected fleet addition, we decrease our revenue estimates by 5%/24% for FY23E/FY24E. Considering the higher ATF prices and lower capacity addition, other cost inflation due to weakening INR impacting company's performance, going forward, we revise our EBITDAR margin estimates by -107bps for FY24E, though we increase it by 115bps in FY23 factoring better than expected 3QFY23 performance. We expect company's Revenue to clock CAGR of 28% over FY22-FY25E and record a PAT of Rs8.3bn in FY25E (vs. net loss of Rs16.5bn in FY22). Stock is currently trading at a P/E valuation of 5.7x/2.7x FY24E/FY25E and EV/EBITDA of 5.7x/3.5x FY24E/FY25E. We reiterate our BUY rating on SPJET with an unrevised Target Price of Rs61, rolling forward our valuation to FY25 and valuing the stock at a revised EV/EBITDAR multiple of 4x FY25E.
Shares of SPICEJET LTD was last trading in BSE at Rs. 36.48 as compared to the previous close of Rs. 36.85. The total number of shares traded during the day was 456381 in over 3270 trades.
The stock hit an intraday high of Rs. 37.18 and intraday low of 36.15. The net turnover during the day was Rs. 16731207.00.