Spicejet's Q4FY18 results (Outperformer) - Niche routes support yields
Q4FY18 result highlights
- SpiceJet reported strong growth in yields at 7.5%yoy led by better route mix in a seasonally weak quarter. PAT grew 10.9%yoy to Rs462m but was below estimate of Rs786m.
- With capacity additions lagging demand, load factors continue to remain robust and grew 180bp yoy to 94.1%. Passenger traffic grew 19.7%yoy to 4.8m, ASK grew 16.1%yoy to 5.2bn and RPK grew 18.3%yoy to 4.9bn. Average fare grew 3.6%yoy to Rs3,670/pax.
- RASK (yield) grew 7.5%yoy to Rs3.9 (est: Rs4) and gross spreads grew 4.6%yoy to Rs2.5 (est: Rs2.6). Fuel cost/ASKM grew 13.2%yoy to Rs1.4 and CASK (ex-fuel) grew 5%yoy to Rs2.4 (in line).
- Revenue grew 24.8%yoy to Rs20.3bn (est: Rs20.6bn), EBITDA grew 9.8%yoy to Rs696m and was below estimate of Rs1.4bn mainly due to higher rentals, higher training costs and higher refurbishment costs. EBITDAR grew 16.6%yoy to Rs3.7bn (est: Rs4.3bn) and EBITDAR margin declined 125bp yoy to 18.1% (est: 20.7%).
- Interest costs grew 54.2%yoy to Rs257m (down 20%qoq) due to increase in debt post cash deposit of Rs2.5bn and BG of Rs3.3bn submitted with the Delhi HC in the Maran case during Q2. Arbitration is currently underway in the dispute. Other income was high due to reversal of provisions and grew 28.3%yoy to Rs614m (est: Rs257m).
- Quarter end fleet declined by 2 aircrafts qoq to 58 aircrafts (36 B737s and 22 Q400s). The company has guided for an aircraft addition of 19 B737 Max and 8 new generation Q400 aircraft in FY19.
Key positives: Strong passenger growth and better yields.
Key negatives: Increase in fuel prices.
Impact on financials: Downgrade in FY18E/19E earnings by 24%/9.9% due to elevated fuel cost.
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 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 8.3x/7.3x FY19E/FY20E EV/EBITDAR and we value SpiceJet at 8.1x FY20E EBITDAR (5% discount to multiple assigned to IndiGo). We maintain Outperformer with a revised price target of Rs158.
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