Spicejet Equity Research Report

A N A L Y S I S O N S P I C E J E T

0 9 / 0 8 / 2 0 1 7

- A n u p r e e t , A i s h a n i , S h u b h a m ,

S i d d h a r t h , K u n a l , R a h u l -

A N A L Y S I S A N D

V A L U A T I O N G r o u p 4

S P I C E J E T L I M I T E D

B U Y R E C O M M E N D AT I O N

P R O F I T M A K I N G

Net profit for FY 2017 stood at INR 430.7 Crore, making this the second successive year of profitable

growth.

H I G H E B I T D A R

On an EBITDAR basis, the profit is INR 363 crore for the fourth quarter and INR 1654.9 crore for the fiscal

2017.

H I G H P A X L O A D

Its load factor of over 90% for 24 months in a row has no parallel globally.

BUSINESS DESCRIPTION

Introduction Economy Industry Company Valuation Financial Analysis

I N D I A N E C O N O M Y

4 - S T R O N G F A C T O R S

G D P F O R E C A S T - > 7 % - 8 %

A c c o r d i n g t o I M F ,

G D P o f I n d i a w i l l

g r o w a t 7 - 8 % i n

c o m i n g f i s c a l s .

U D A N S C H E M E

R e g i o n a l C o n n e c t i v i t y

S c h e m e f o r c o m m o n

c i t i z e n . T a r g e t o f

1 . 3 M P a s s e n g e r s b y

2 0 1 9 .

L O W I N F L A T I O N

T h e I n f l a t i o n h a s

d e c l i n e d s i g n i f i c a n t l y

f r o m 4 . 6 % i n F Y 1 6 T O

3 . 1 % i n F Y 1 7

O I L P R I C E S & E X C H A N G E

R A T E S

I n c r e a s e i n f u e l c o s t

b y 4 6 % a n d

d e p r e c i a t i o n o f I N R

a f f e c t e d a i r l i n e

i n d u s t r y


PORTER'S 5 FORCES

Rivlary within the industry

5

Intense rivlary due to staggered industry which as it has arrived to a mature stage

Pricing strategies and wars are very common in the industry

Poor yield environment

Threat of new entrant 2

large amount of capital needed to operate

leverages the efficiencies and the synergies from the economies of scale

airlines willing to incur in losses or by lowering fares so they maintain competitiveness

Bargaining power of customer

4

There are two different groups of buyers: the individual flyers& travel agencies

airlines to give customers the best mix of options to choose from

switching costs in the industry are very low(increased due to third parts websites and apps

Threat of substitute 1

currently there isn’t any technology or mean of transportation that is as fast and reliable as an airplane

business traveling, webcast services and other technologies are considered an indirect substitute

the customer will evaluate other means for short distances because of the fact that it is often less expensive

Bargaining power of suppliers

4limited number of manufacturers and high switching costs

the transition costs in training and adapting facilities will be extremely high


012345

Rivlarywithin theindustry

Threat ofnew entrant

Bargainingpower ofcustomer

Threat ofsubstitute

Bargainingpower ofsuppliers

01R O B U S T D E M A N D

02C I V I L A V I A T I O N

P O L I C Y

03I N C R E A S E I N L O W

C O S T C A R R I E R S

04I N P U T C O S T S

05E X C H A N G E R A T E

06M A R K E T G R O W T H

PAX increased

by 22% for the

industry in FY17


Enhancement in

ease of doing

business

CAGR 17% -

Domestic, CAGR

60% -

International

Increased by

46% last

quarter, but still

low

Rupee is

depreciating –

Point of concern

IATA Estimates –

15% growth in

coming fiscals

01FINANCIAL STABILITY

Using Profits to reduce

expensive working capital

financing

02RESERVES

Stabilising balance sheet by

creating reserve to address

seasonality pressures

03FLEET SIZE33- Boeing 737 NG

18- Bombardier

Order of 205 Aircrafts

04REVENUE ENHANCEMENTimproving loads through

advance purchase sales

and promotions designed

to stimulate the market.

05BRAND POSITIONING

SpiceJet is positioned as

the ‘antidote’ to travel

boredom. The airline is

credited with bringing the

fun, the

anticipation, the

experience or in other

words, the ‘spice’ back in

flying

D E V E L O P M E N T S

I N S P I C E J E T


V A L U A T I O N I N F O G R A P H I C

O F S P I C E J E T


₹ 0.00

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2018E 2019E 2020E 2021E 2022E 2023E 2024E

Forecasted Value

Revenue Expenses EBIT

Competitior Jet Airways Indigo Spice Jet Industry Average

EV/Core EBITDA(x) 18.65 16.65 16.21 17.17

PE 15.42 24.55 19.6 19.85666667

₹ 105.65

₹ 133.34

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CMP TP

PRICE

0

500

1000

1500

2000

2500

₹ 1

0.3

2

₹ 2

3.9

9

₹ 3

7.6

7

₹ 5

1.3

4

₹ 6

5.0

1

₹ 7

8.6

9

₹ 9

2.3

6

₹ 1

06

.03

₹ 1

19

.70

₹ 1

33

.38

₹ 1

47

.05

₹ 1

60

.72

₹ 1

74

.40

₹ 1

88

.07

₹ 2

01

.74

₹ 2

15

.42

₹ 2

29

.09

₹ 2

42

.76

₹ 2

56

.44

MonteCarlo Simulation

Buy

SellRECOMMENDATION: BUY

CMP IS TAKEN AS CLOSING PRICE OF 5TH

JUNE 2017

93% BUY PROBABILITY

H I S T O R I C A L F I N A N C I A L S

F I N A N C I A L A N A L Y S I S


Turnover Ratio Spicejet

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

Sales 5,600.68 6,304.23 5,243.07 5,088.07 6,191.14

Assets 3,071.01 2,947.02 2,606.59 2,703.79 2,988.00

Turnover Ratio 1.82 2.14 2.01 1.88 2.07

Operating Margin Spicejet


PBIT 9.34 (715.64) (456.75) 579.04 652.12

Sales 5,600.68 6,304.23 5,243.07 5,088.07 6,191.14

Operating Margin 0.00 (0.11) (0.09) 0.11 0.11

Interest Burden Spicejet


PBT (191.08) (1,003.24) (687.05) 407.20 427.02

PBIT 9.34 (715.64) (456.75) 579.04 652.12

Interest Burden (20.46) 1.40 1.50 0.70 0.65

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Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Revenue Power & Aircraft Fuel Expenses Operating Profit

Spicejet Equity Research Report

Economy & Finance

Transcript of Spicejet Equity Research Report