Spicejet's Q3FY18 results (Outperformer) - Earnings surprise led by higher yields
Q3FY18 result highlights
- Spice Jet reported stellar earnings in Q3FY18 led by higher volumes and better yields. Adjusted PAT grew 68.3%yoy to Rs2.4bn as against our estimate of Rs1.3bn.
- With capacity additions lagging demand, load factors continue to remain robust and grew 260bp yoy to 93.8%. Passenger traffic grew 18.2%yoy to 4.6m, ASK grew 15.5%yoy to 4.9bn and RPK grew 18.8%yoy to 4.6bn. Average fare grew 9%yoy to Rs3,905/pax.
- RASK (yield) grew 9.7%yoy to Rs4.2 led by higher fares (est: Rs4) and gross spreads grew 7.5%yoy to Rs2.9 (est: Rs2.8). CASK (ex-fuel) grew 5.1%yoy to Rs2.5 (in line).
- Revenue grew 26.8%yoy to Rs20.8bn (est: Rs19.9bn), EBITDA grew 72.7%yoy to Rs3bn (est: Rs1.8bn), EBITDAR grew 36%yoy to Rs5.7bn (est: Rs4.5bn) and EBITDAR margin grew 185bp yoy to 27.3% against est of 22.5%.
- Interest costs grew 4.1x yoy to Rs322m (est: Rs225m) due to increase in debt post cash deposit of Rs2.5bn and submission of BG of Rs3.3bn with the Delhi High Court in Q2FY18 in relation to the ongoing dispute with the Maran’s. Arbitration is currently underway in this dispute.
- Quarter end fleet grew by 5 aircrafts qoq to 60 aircrafts with a mix of 38 B737s and 22 Q400s. The company has guided for an aircraft addition of 12-15 B737s and 6-9 Q400s by Dec 2018. The delivery of the new B737 max aircraft will begin from Aug 2018 and for the Q400s it will begin from Sep 2018.
Key positives: Strong passenger growth and better yields.
Key negatives: Increase in interest costs.
Impact on financials: Upgrade of 3.8%/2.5% in FY18E/FY19E earnings due to better than expected yields. Introduced FY20E earnings.
Valuations & view
Spice Jet continues to reap benefits of its increased non-metro/regional focus by way of strong passenger growth and higher fares/yields. We expect the impact of the recent surge in crude prices to be passed on in tariffs by Q1FY19 given that the demand supply balance remains favourable for the industry. With strong cash generation we expect SpiceJet’s balance sheet to continue to strengthen (we expect net cash position by Mar-19). The stock trades at 7.8x/7.1x FY19E/FY20E EV/EBITDAR and we value SpiceJet at 8.4x FY20E EBITDAR (5% discount to multiple assigned to IndiGo). We maintain Outperformer with a revised price target of Rs181.
Spicejet Ltd is an India-based company engaged in transportation of passengers by air. The Company is engaged in the business of scheduled air transport services. Its geographical segments include India and others. It provides air transport services for the carriage of passengers and cargo. The Company is a low cost carrier (LCC) operating under the brand name of Spice Jet in India. The Company operates a fleet of approximately 40 aircraft, including approximately seven aircraft taken on wet lease across various routes in India and abroad. The Company's spice add-on includes spice cash/spice club, SpiceMax, hot meals, SpiceCash Top-up, priority check-in, Spice talk, track Spicetalk request, bag out first, carry more onboard, fly for sure, Spice lounge, my flexi plan, reliance travel insurance, Spice assurance, Spice flex, friends and family, senior citizen discount, student discount, Indian armed forces personnel and red hot offers.
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