Turbulence continues for SpiceJet in Q3; are the skies clear going ahead?

Brokerages are upbeat on SpiceJet’s financials, going forward, especially after it receives deliveries of Boeing Max aircraft.

They have retained buy calls on the stock, stating better fuel efficiency, passenger load factors and falling non-fuel cost.

Low cost airline carrier SpiceJet has posted a steep 77.1 percent year-on-year decline in profit to Rs 55.1 crore, dented by higher aircraft fuel expenses.

Its profit in same period last year was at Rs 240 crore.

The company said revenue from operations during the quarter grew by 20.2 percent to Rs 2,487 crore year-on-year.

At operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) plunged 62.7 percent YoY to Rs 113.2 crore and margin contracted to 4.5 percent in Q3 against 14.7 percent YoY due to more than 33 percent increase in operating expenses.

Here is a gist of what brokerages are stating about the results.

Brokerage: SBI Cap Securities

SBI Cap Securities believes that the company’s Q3FY19 revenue trajectory was akin to that of its peers – YoY improvement in yields (by 3.2%) at the cost of PLF (340bps down).

However, elevated cost pressure resulted in PAT declining 77% YoY.

Delivery of fuel-efficient Max aircraft, which is expected to improve overall operating economics of the aircraft by 8-9%, has commenced – 10 in a fleet of 74.

However, it is still early days to gauge the benefits of this, and performance in Q4FY19/Q1FY20 will be key.

“Return of pricing discipline coupled with cost-reduction measures should drive improvement in profitability,” analysts at the firm wrote in their report.

Brokerage: Edelweiss

Key highlights:

1) Yields rose 4% YoY offsetting the fall in PLF from 94% to 90%.

2) Contrary to market fears, PLFs have proven less elastic to yields than anticipated, leading to RASK expansion.

Management has indicated focus on RASK expansion; a pickup in growth to 17% QTD will help support this as the slide in PLF should taper in Q4.

With B-737 Max deliveries on schedule, the company is on course to record steady, profitable growth.

Brokerage: Elara Securities

FY20E over Q3 based on current crude prices and dollar rate.

Moreover, addition of fuel-efficient Boeing 737-Max8 aircrafts would further reduce fuel CASK by Rs 0.10 per seat-km.

Strong growth in fares to sustain

A 15-day advance air fare of 653 domestic routes, states average industry yield improved ~15% YoY during Jan-Feb 2019 on declining capacity of Jet Airways.

“We expect Spicejet to benefit further from falling competition in regional routes, comprising 10% of its passenger volume. We saw regional routes premium over the industry rise to Rs 3.9 per seat-km during January-February 2019 vs Rs 2.9per seat-km during April-December2018,” analysts said.