SpiceJet BUY. Performance Highlights CMP. `32 Target Price `43. 1QFY2013 Result Update Airlines. Investment Period 12 Months.

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1 1QFY213 Result Update Airlines July 31, 212 SpiceJet Performance Highlights Particulars (` cr) 1QFY213 1QFY212 %chg (yoy) 4QFY212 %chg (qoq) Net sales 1, , EBITDA 76 (67) 214 (2) 138 EBITDA margin (%) 5.2 (7.1) 1,225bp (18.) 2,32bp Net profit 56 (72) 178 (249) 123 Strong top-line growth continue, margins turn positive: For 1QFY213, SpiceJet reported strong top-line growth of 55.1% yoy on the back of capacity additions during the year, higher load factor coupled with higher ticket prices on a yoy basis. EBITDAR margin increased by 1,168bp yoy to positive 18.6% and EBITDA margin increased by 1,225bp yoy to positive 5.2%, owing to higher load factor and ticket prices during the quarter. Company s load factor improved to 8.3% during the quarter on an expanded fleet size compared to 78.9% in 1QFY212. Passenger yields also increased by 24% yoy to `4,68 v/s. `3,283 in 1QFY212. Consequently, SpiceJet registered profit of `56cr in 1QFY213 compared to loss of `72cr in 1QFY212. Profits sustainable over FY213-14: We believe the industry is witnessing a structural change, where airline companies have increased their ticket prices and competition has reduced to a certain extent. Load factors have also been improving for all airlines post Kingfisher s capacity reduction. We expect SpiceJet to witness high load factor going ahead and report full year profit in FY13-14E. With the company s expected fuel import to start from July 212, we expect its profit margin to further improve from 2QFY213. SpiceJet currently has a fleet of 35 Boeing aircraft and 12 Bombardier aircraft. The company will also add seven Boeing and three Bombardier aircraft by the end of FY214. By the end of FY214, the total tally would be 42 Boeings and 15 Bombardiers, as per the current expansion plans. We expect the company s net sales to post a 28.5% CAGR to `6,599cr over FY and report PAT of `175 and `26 in FY213 and FY214 respectively. We recommend Buy on the stock with a target price of `43. Key financials Y/E March (` cr) FY211 FY212 FY213E FY214E Net Sales 2,934 3,998 5,72 6,599 % chg Net Profit 11.2 (65.8) % chg 64.7 (698.9) FDEPS (`) 2.5 (13.7) EBITDA Margin (%) 3.9 (13.) P/E (x) P/CEPS (x) P/BV (x) EV/Sales (x) EV/EBITDAR (x) BUY CMP `32 Target Price `43 Investment Period 12 Months Stock Info Sector Airlines Market Cap (` cr) Beta 52 Week High / Low 1, /15 Avg. Daily Volume 5,463,286 Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code 1 17,236 5,229 SPJT.BO SJET@IN Shareholding Pattern (%) Promoters 43.6 MF / Banks / Indian Fls 12.8 FII / NRIs / OCBs 3.9 Indian Public / Others 39.7 Abs. (%) 3m 1yr 3yr Sensex (.5) (5.3) 1. SpiceJet Sharan Lillaney Ext: 6811 sharanb.lillaney@angelbroking.com Please refer to important disclosures at the end of this report 1

2 Exhibit 1: 1QFY213 performance highlights Particulars (` cr) 1QFY213 1QFY212 %chg (yoy) 4QFY212 %chg (qoq) FY212 FY211 %chg (yoy) Net Sales 1, , ,998. 2, Total Expenditure 1,39.5 1, , , , EBITDA 76 (67) (2.5) 138. (518.4) (548) EBITDA Margin (%) 5.2 (7.1) 1,225bp (18.) 2,32bp (13.) 3.9 (1,691)bp EBITDAR (28.) 1, (84.6) EBITDAR Margin (%) ,168bp (2.5) 2,19bp (1,646)bp Depreciation EBIT 62.4 (69.3) 19.1 (213.1) (549.4) 16.8 (614) Interest Other Income (19) PBT 49.6 (72.) (223.9) (58.5) (553) Tax Exceptional Item (12.9) Net Profit 56.2 (72.) 178. (249.2) (65.8) 11.2 (699) NPM (%) 3.8 (7.6) 1,144bp (22.4) 2,622bp (15.2) 3.4 (1,86)bp Diluted EPS (`) 1.3 (1.6) 178. (5.6) (14.9) 2.5 (699) Exhibit 2: Operating parameters 1QFY213 1QFY212 %chg (yoy) 4QFY212 %chg (qoq) FY212 FY211 %chg (yoy) ASKM (mn) 3,776 3, , ,79 1, Block Hours 3,969 2, , ,65 9, Departures 24,64 17, , ,4 53, Pax Carried 3,256, 2,582, ,916, ,893, 8,68, 26.5 Average No. of Aircrafts Average Seat Revenue 4,68 3, , ,67 3, Load Factor (%) (8.7) Revenue/ASKM Strong top-line growth with higher seat revenue: For 1QFY213, SpiceJet s net sales grew by 55.1% yoy to `1,467cr, driven by strong capacity additions, higher load factor coupled with higher ticket prices. Company s load factor improved to 8.3% during the quarter on an expanded fleet size compared to 78.9% in 1QFY212. Passenger yields also increased by 24% yoy to `4,68 v/s. `3,283 in 1QFY212. July 31, 212 2

3 Exhibit 3: Strong growth continues on the back of capacity expansion (` cr) (%) 1, ,4 1,2 1, ,176 1,113 1, QFY211 1QFY212 2QFY212 3QFY212 4QFY212 Net Sales (LHS) Growth yoy Turnaround in operations: SpiceJet s EBITDAR margin increased by 1,168bp yoy to positive 18.6% and EBITDA margin increased by 1,225bp yoy to positive 5.2%, owing to higher load factor and ticket prices during the quarter. Exhibit 4: Margin positive on back of higher load factor and ticket prices 1 5 (5) (1) (15) (2) (25) (3) (35) 5.2 1QFY212 2QFY212 3QFY212 (1.6) 4QFY212 1QFY213 (7.1) (18.) (3.2) SpiceJet back to profit after five consecutive quarters: SpiceJet reported profit of `56cr after five consecutive loss making quarters showing signs of turnaround in the Industry. We believe this wasn t a one off profit making quarter, and these profits are sustainable in the coming quarters as well on back significant decline in capacity and competition in the Industry. 2Q expected to be profitable as well Generally 2Q is the weakest quarter for the Industry as weather plays an important part in day to day operations resulting in lower load factor. But, since monsoon has been delayed this year, we don t expect a significant decline in load factor for the company and since competition is more or less disappeared in the Industry we expect ticket prices to remain firm in 2QFY213 as well. Consequently, for 2QFY213 also we expect SpiceJet to report profits but will be definitely lower than 1QFY213. July 31, 212 3

4 Exhibit 5: Turning back to profitability (` cr) (%) QFY212 2QFY212 3QFY212 4QFY212 1QFY213 (5) (5) (39) (1) (1) (72) (15) (15) (2) (2) (25) (25) (24) (249) (3) (3) Net Profit (LHS) NPM (RHS) (35) Exhibit 6: Key assumptions Estimates (%) FY212 FY213 Sales growth Load factor EBITDAR margin EBITDA margin Net profit margin Outlook and valuation We believe the industry is witnessing a structural change, where airline companies have increased their ticket prices and competition has reduced to a certain extent. Load factors have also been improving for all airlines post Kingfisher s capacity reduction. We expect SpiceJet to witness high load factor going ahead and report full year profit in FY13-14E. With the company s expected fuel import to start from July 212, we expect its profit margin to further improve from 2QFY213. SpiceJet currently has a fleet of 35 Boeing aircraft and twelve Bombardier aircraft. The company will also add seven Boeing and three Bombardier aircraft by the end of FY214. By the end of FY214, the total tally would be 42 Boeings and 15 Bombardiers, as per the current expansion plans. We expect the company s net sales to post a 28.5% CAGR to `6,599cr over FY We recommend Buy on the stock with a target price of `43. July 31, 212 4

5 Profit & loss statement Y/E March FY21 FY211 FY212 FY213E FY214E Total operating income 2,181 2,934 3,998 5,72 6,599 % chg Total Expenditure 2,155 2,819 4,516 5,416 6,148 Fuel & Oil 814 1,226 2,196 2,615 3,56 Other Mfg costs ,49 1,198 Personnel Other EBITDA (518) (% of Net Sales) (13.) Depreciation& Amortisation EBIT (549) % chg (614.5) (% of Net Sales) (13.7) Interest & other Charges Other Income (% of PBT) 83 2 (4) 14 1 Share in profit of Associates Recurring PBT (58) % chg (552.9) Extraordinary Expense/(Inc.) (13) - PBT (reported) (66) Tax (% of PBT) PAT (reported) (66) Add: Share of earnings of asso Less: Minority interest (MI) Prior period items PAT after MI (reported) (66) ADJ. PAT (66) % chg (698.9) (% of Net Sales) (15.2) Basic EPS (`) (13.7) Fully Diluted EPS (`) (13.7) % chg (649.9) July 31, 212 5

6 Balance sheet Y/E March FY21 FY211 FY212 FY213E FY214E SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus (584) (84) (595) (364) (14) Shareholders Funds (342) 321 (153) Foreign Currency Total Loans ,15 1,15 Deferred Tax Liability Total Liabilities ,232 1,492 APPLICATION OF FUNDS Gross Block ,486 2,86 Less: Acc. Depreciation Net Block ,35 1,861 Capital Work-in-Progress Goodwill Investments Current Assets ,12 1, Cash Loans & Advances Inventories Debtors Other Current liabilities ,262 1,132 1,326 Net Current Assets (296) (291) (142) (118) (369) Mis. Exp. not written off Total Assets ,232 1,492 July 31, 212 6

7 Cash flow statement Y/E March FY21 FY211 FY212 FY213E FY213E Profit before tax (58) Depreciation Change in Working Capital 178 (52) 31 (176) 179 Expenses (deffered)/written off (32) (8) Direct taxes paid Cash Flow from Operations (24) Inc./ (Dec.) in Fixed Assets (139) (36) (183) (56) (6) Inc./ (Dec.) in Investments Inc./ (Dec.) in loans and advances 42 (69) (422) Other income/expense Cash Flow from Investing (98) (375) (65) (252) (44) Issue of Equity Inc./(Dec.) in loans Others 19 (185) (12) 14 - Cash Flow from Financing Inc./(Dec.) in Cash 143 (258) Opening Cash balances Closing Cash balances July 31, 212 7

8 Key ratios Y/E March FY21 FY211 FY212 FY213E FY213E Valuation Ratio (x) P/E (on FDEPS) (2.3) P/E (on basic, reported EPS) (2.3) P/CEPS (2.5) P/BV (2.3) 4.1 (9.3) Market cap. / Sales EV/Sales EV/EBITDA (3.9) EV / Total Assets EV/EBITDAR Per Share Data (`) EPS (Basic) (13.7) EPS (fully diluted) (13.7) Cash EPS (13.) Book Value (14.1) 7.9 (3.5) Turnover ratios (x) Asset Turnover (Gross Block) Asset Turnover (Net Block) Asset Turnover (Total Assets) Operating Income / Invested Capital (7.2) (42.) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) (14) (77) (39) (28) (39) Solvency ratios (x) Gross debt to equity (1.3).3 (5.6) Net debt to equity. (.3) (4.) Net debt to EBITDA (.5) (.9) (1.2) Interest Coverage (EBIT / Interest) (1.5) July 31, 212 8

9 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement SpiceJet 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%) July 31, 212 9