SpiceJet results indicate a good flight for investors


The SpiceJet Ltd stock touched an intraday high of Rs139 on BSE on Wednesday, rising 7.5% over the previous day’s closing. Investors cheered the airline’s December quarter results, with the company clocking a net profit of Rs240 crore, exceeding analysts’ estimates. Earnings before tax and exceptional items increased as much as 68%.

What helped?

It’s worth recalling that the airline’s performance in the December 2016 quarter was adversely affected by demonetisation, so there’s a favourable base effect. Still, SpiceJet’s load factor was a commendable 94%. What’s also encouraging is that average fares increased 9% for the December quarter. But do note that in the year-ago quarter, fares had declined 7%. Nevertheless, fare performance last quarter was better than expectations.

The upshot: operating revenue increased 27% over the same period last year to Rs2,082 crore. Further, on the costs excluding fuel, the company managed well. Costs per available seat kilometre (unit cost measure for airlines) or CASK ex-fuel increased at a slower pace of 3.7%. Fuel CASK increased 17% with crude oil prices being uncomfortably high. Total CASK thus increased 8% whereas revenue per available seat kilometre moved up at a slightly faster pace of 9%.

The SpiceJet stock eventually ended the day about 4% higher. So far this fiscal year, it has outperformed the S&P BSE 500 index for most of the year. Currently, the stock trades at about 10 times estimated earnings for fiscal year 2019 (FY19), based on Bloomberg data. That’s doesn’t appear expensive. In comparison, shares of InterGlobe Aviation Ltd (that runs the IndiGo airline) trade at about 17 times FY19’s estimated earnings.

But firm crude oil prices are a looming threat in the near future. Against that backdrop, pricing will be a crucial factor to follow. For the nine-month period ended 31 December, SpiceJet’s fares increased 7%. Kiran Koteshwar, chief financial officer of the company, expects this to be a sustainable growth from a near- to medium-term perspective.

The trajectory of its regional operations too will be worth watching. Under the UDAN scheme, SpiceJet has launched its fourth flight and secured 20 additional routes.

Overall, domestic passenger growth is satisfactory. Around 17% more passengers were carried by domestic airlines in 2017, according to the Directorate General of Civil Aviation. Unless crude oil prices throw up nasty surprises adversely impacting profit margins, the SpiceJet stock should get support for an easy flight.livemint