Spicejet's Q1FY19 results (Outperformer) - Outperforming peers on yields

Q1FY19 result highlights

• SpiceJet’s Q1FY19 earnings were below estimate led by higher maintenance and fx MTM loss. However, the company has reported recurring profit in a tough quarter with 5.2% yoy growth in yields.
• The company reported a net loss of Rs381m after considering exceptional provision of Rs635m on account of interest liability in the dispute with the Marans.  Recurring PAT at Rs254m is below estimate of Rs894m due to higher maintenance costs and fx variation loss of Rs509m (which includes Fx loss of Rs252m).
• With capacity additions lagging demand, load factors continue to remain robust and grew 55bp yoy to 93.8%. Passenger traffic grew 14.2%yoy to 4.8m, ASK grew 13.7%yoy to 5.2bn and RPK grew 14.3%yoy to 4.9bn. Average fare grew 3.9%yoy to Rs4,098/pax.
• RASK (yield) grew 5.2%yoy to Rs4.3 (est: Rs4.2) but gross spread declined 6.2%yoy to Rs2.7 (in line) due to surge in fuel cost. Fuel cost/ASKM grew 33.2%yoy to Rs1.6 and CASK (ex-fuel) grew 6%yoy to Rs2.7 due to the Fx loss of Rs509m (+2.2% w/o Fx loss).
• Revenue grew 19.6%yoy to Rs22.4bn (in line), EBITDA declined 63.3%yoy to Rs838m and EBITDAR declined 20.9%yoy to Rs3.6bn, below estimate of Rs4.6bn, due to higher fuel cost, higher maintenance costs and fx MTM loss. EBITDAR margin declined 830bp yoy to 16.3% (est: 20.6%).
• Quarter end fleet remained unchanged qoq to 58 aircrafts (36 B737s and 22 Q400s). The company has guided to add 15 aircrafts by Dec-18 comprising of 11 737 Max aircrafts and 4 Q400s.

Key positives: Stronger yields compared to peers.

Key negatives: Increase in fuel prices and weakening of INR.

Impact on financials: Downgrade in FY19E/20E earnings by 28.3%/4% respectively, due to elevated fuel cost and MTM fx loss. 

Valuations & view

SpiceJet continues to reap benefits of its increased non-metro/regional focus by way of strong passenger growth and higher fares/yields. We expect SpiceJet to be better placed to pass on the recent surge in crude prices (albeit with a lag) due to its niche route strategy. The stock trades at 8.1x/6.6x FY19E/FY20E EV/EBITDAR and we value SpiceJet at 7.4x FY20E EBITDAR (in line with global peers). We maintain Outperformer with a revised price target of Rs126.