SpiceJet (SJet) announced a loss of Rs 12.5 billion in fiscal year 21 (excluding forex), in accordance with expectations. The balance sheet position is weak with negative equity of Rs 26 billion and a gross loan without rental commitment of Rs 44 billion at the end of fiscal year 21. We now estimate revenues at Rs 73.6 billion / Rs 136 billion and the PAT at Rs (-) 8.9 billion / + 4.7 billion for FY22E / FY23E. We value SJet at Rs 85 (15x FY23E profits adjusted for a 25% tax rate as it pays no tax, which translates to a multiple of 11x). Recapitalization remains the key. Hold “hold” on the action and the target price of Rs 85.
FY21 performance – gross liabilities reduced during FY21 (cash consumption is lower than IndiGo): Ex-forex, SJet’s losses were Rs 12.5 billion at FY21 (~ Rs 58 billion for IndiGo). Other income continued to include compensation from Boeing at a quarterly execution rate of Rs 1.4 billion – in addition to Rs 1.2 billion in FY21 from leasing concessions.
Freight becomes the main narrative as it is slated to be separated: SJet’s freight revenue grew 518% year-on-year to Rs 11.2 billion in FY21 (US $ 4.17 billion). rupees in the fourth quarter of fiscal year 21). The net freight profit was Rs 1.3 billion for FY21 against a loss of Rs 1.34 billion for FY20. The company operates a fleet of 20 freighters including eight large carriers.
The freight initiative is commendable, but the freight momentum may slow with the return of belly space. Driven by freight business, SJet’s ancillary revenue fell from Rs 13 billion in FY20 to Rs 19.5 billion (estimate) in FY 21 despite a 58% drop in ASK.
SJet has approved fundraising of up to Rs 25 billion by issuing eligible securities to qualified institutional buyers. If this involves new equity, the shareholding of the current promoter will increase from 60% to 40%.
SJet has a competitive cost structure, but the balance sheet remains a surplus: SJet’s cost per ASK (CASK), with depreciation and interest charges, is competitive (average Rs 3.92 between FY16-FY20 and Rs 6.2 in FY21) against Rs 3.42 / 4.84 for IndiGo in a similar comparison. SJet’s RASK was better than IndiGo by an average of 9% in FY16-FY20 and 35% higher in FY21 due to better PLFs. However, the record remains a big overhang for SJet.
The risks include: 1) rising crude prices; 2) covid-related disruptions or delayed resumption of traffic; 3) delay or less than expected of compensation from Boeing (SJet has accrued Rs11bn to date); 4) possible outflows of funds in ongoing litigation and renegotiations with suppliers; and 5) delay in recapitalization.