Healthy operating performance in Q2 November 28, 2016 Rohan Korde rohankorde@plindia.com +91 22 66322235 Rating BUY Price Rs65 Target Price Rs115 Implied Upside 76.9% Sensex 26,316 Nifty 8,114 (Prices as on November 25, 2016) Trading data Market Cap. (Rs bn) 39.2 Shares o/s (m) 599.5 3M Avg. Daily value (Rs m) 334.6 Major shareholders Promoters 60.32% Foreign 2.38% Domestic Inst. 0.01% Public & Other 37.29% Stock Performance (%) 1M 6M 12M Absolute (7.8) (6.8) (5.4) Relative (1.4) (8.5) (7.5) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2017 9.4 8.1 16.3 2018 13.1 9.6 36.8 Price Performance (RIC: SPJT.BO, BB: SJET IN) (Rs) 100 80 60 40 20 0 Nov 15 Jan 16 Source: Bloomberg Mar 16 May 16 Jul 16 Sep 16 Nov 16 With healthy growth in Available Seat Kilometres (ASK) at 33% YoY and ancillary service revenues growing 27.4% YoY, SpiceJet (SJ) had robust YoY revenue growth during Q2FY17. YoY lower Fuel CASK also resulted in strong 85.9% YoY growth in adjusted EBITDAR, which met our expectations. With lower than expected lease rental costs, profit was higher than expectations at Rs589m (PLe: Rs320m), as compared to an adjusted loss YoY. Passenger Load Factor (PLF) remained high through Q2FY17 for SJ and is expected to continue through FY17. While Q2 is a seasonally sluggish period for the aviation industry, focus on cargo and other ancillary services is expected to provide revenue growth ahead for SJ in H2. We also note that the high PLF should enable SJ some flexibility in pricing action if required in the event of a sharp increase in crude price. We maintain our estimate and target price and re iterate a BUY. SJ reported a strong performance in Q2FY17, driven by YoY lower fuel costs and a sustained high PLF. SJ plans to use pricing as one of the levers to increase PLF. The company is also working on ways to improve ancillary revenues ahead. SJ s sales growth was 34.6% YoY (on a low base) to Rs14n. ASK was higher by 33% YoY at ~3.8bn km. Domestic ASK increased 26.1% YoY and international ASKM increased 59.5% YoY. The number of domestic passengers carried by SJ increased 24.1% YoY, while the number of international passengers carried increased 53.8% YoY. Revenue per Available Seat Kilometre (RASK) decreased by 7.5% YoY to Rs3.57. SJ s PLF was ~91.3% in Q2, which was amongst the highest in the industry. Fuel cost was 30.7% of sales (v/s 32.5% in Q2FY16 and 26.3% in Q1FY17). Other expenses and other operating costs were also lower YoY, which helped adjusted EBITDAR grow from Rs1.8bn in Q2FY16 to Rs3.33bn in Q2FY17 (PLe: Rs3.31bn). EBITDAR margin was 23.8% (v/s 17.2% Q2FY16 and 31.2% Q1FY17). Contd...2 Key financials (Y/e March) 2015 2016 2017E 2018E Revenues (Rs m) 52,448 50,883 61,196 75,044 Growth (%) (17.5) (3.0) 20.3 22.6 EBITDA (Rs m) (6,149) 6,316 8,599 11,100 PAT (Rs m) (7,810) 4,424 5,625 7,831 EPS (Rs) (13.0) 7.4 9.4 13.1 Growth (%) (30.5) (156.6) 27.2 39.2 Net DPS (Rs) Profitability & Valuation 2015 2016 2017E 2018E EBITDA margin (%) (11.7) 12.4 14.1 14.8 RoE (%) 69.1 (46.7) (160.6) 242.8 RoCE (%) (198.7) 188.6 94.4 65.4 EV / sales (x) 1.0 1.0 0.7 0.5 EV / EBITDA (x) (8.6) 7.7 5.2 3.5 PE (x) (5.0) 8.9 7.0 5.0 P / BV (x) (3.1) (6.2) (56.7) 5.5 Net dividend yield (%) Source: Company Data; PL Research Q2FY17 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Passenger revenues were higher 35% YoY to Rs12.3bn, while ancillary revenues were higher 27.4% YoY to Rs1.5bn. Yield was higher 1% YoY. While Fuel Cost per Available Seat Kilometre (CASK) was lower 6.8% YoY, non fuel CASK was lower 10.3% YoY. Lease rentals were higher 21.7% YoY to Rs2.1bn (as a % of sales they were lower 240bps YoY and 160bps QoQ). These could inch up again in H2 is more aircrafts are added to the fleet on a short term basis. EBITDA was Rs1.11bn and EBITDA margin was 8% (compared to just 0.2% in Q2FY16). While depreciation provision was higher 59.6% YoY, interest cost was lower 6.6% YoY and non operating income grew nearly 2x. This led to PBT growth of 147.8% YoY to Rs589m (expectation was Rs320m). While SJ s H1FY17 performance was robust, we note that there remain three key concerns for the company. (1) An increase in crude price has the potential to result in further EPS downgrades. On existing estimates, a 10% increase in crude price would result in ~12% decrease in EPS. (2) The warrants issue is yet to be resolved and if we factor in full dilution of outstanding warrants, our FY17/18 EPS estimate would be Rs7.2/Rs10, and our price target would then get lowered to Rs86. (3) Price competition had intensified in Q2, but fares should normalise in Q3 during the festival season. If the price competition does not ease in Q3, then it may have an adverse impact on the industry performance. November 28, 2016 2
Exhibit 1: Q2FY17 Result Overview (Rs m) Y/e March Q2FY17 Q2FY16 YoY gr. (%) Q1FY17 H1FY17 H1FY16 YoY gr. (%) Net Revenues 14,004 10,401 34.6 15,215 29,219 21,531 35.7 Fuel Cost 4,300 3,378 27.3 3,997 8,296 6,967 19.1 % of Net Sales 30.7 32.5 26.3 28.4 32.4 Other Operational Expenses 3,929 3,057 28.5 3,691 7,621 5,585 36.4 % of Net Sales 28.1 29.4 24.3 26.1 25.9 Personnel 1,531 1,157 32.3 1,475 3,006 2,313 30.0 % of Net Sales 10.9 11.1 9.7 10.3 10.7 Other Exp 1,065 1,090 (2.3) 1,534 2,599 2,075 25.2 % of Net Sales 7.6 10.5 10.1 8.9 9.6 Total Expenditure 10,824 8,682 24.7 10,697 21,521 16,940 27.0 EBITDAR 3,334 1,793 85.9 4,743 8,077 4,777 69.1 EBITDAR Margin (%) 23.8 17.2 31.2 27.6 22.2 Aircraft Rentals 2,064 1,695 21.7 2,595 4,658 3,312 40.7 % of Net Sales 14.7 16.3 17.1 15.9 15.4 EBITDA 1,116 24 4,457.3 1,924 3,040 1,280 137.5 EBITDA Margin (%) 8.0 0.2 12.6 10.4 5.9 Depreciation 485 304 59.6 449 933 751 24.2 EBIT 631 (279) (326.2) 1,475 2,106 529 298.5 Interest Expenses 197 211 (6.6) 209 406 497 (18.4) Non operating income 154 74 109.3 224 379 186 104.0 Extraordinary Income 0 654 (100.0) 0 0 750 (100.0) PBT 589 238 147.8 1,490 2,079 967 115.0 Tax Total 0 0 0 0 0 Tax Rate (%) Total 0.0 0.0 0.0 0.0 0.0 Reported PAT 589 238 147.8 1,490 2,079 967 115.0 Adj. PAT 589 238 147.8 1,490 2,079 217 857.5 Source: Company Data, PL Research Exhibit 2: Operating Metrics Y/e March Q1FY17 Q1FY16 YoY gr. (%) Q4FY16 H1FY17 H1FY16 YoY gr. (%) ASK (m) 3,832 2,881 33.0 3,874 7,707 5,707 35.0 Passenger RASK 3.10 3.16 (1.9) 3.46 3.28 3.36 (2.2) Ancillary RASK 0.47 0.70 (32.9) 0.52 0.50 0.58 (14.7) Total RASK 3.57 3.86 (7.5) 3.98 4.05 3.89 4.3 Fuel CASK 1.09 1.17 (6.8) 1.03 1.06 1.22 (13.1) Other CASK 2.34 2.61 (10.3) 2.56 2.45 2.55 (3.7) Total CASK 3.43 3.78 (9.3) 3.59 3.79 3.86 (1.7) RASK CASK 0.14 0.08 75.0 0.39 0.26 0.03 817.9 Source: Company Data, PL Research November 28, 2016 3
Income Statement (Rs m) Net Revenue 52,448 50,883 61,196 75,044 Raw Material Expenses 39,414 26,962 32,514 40,712 Gross Profit 13,035 23,920 28,682 34,332 Employee Cost 5,375 4,928 5,668 6,660 Other Expenses 13,809 12,676 14,416 16,573 EBITDA (6,149) 6,316 8,599 11,100 Depr. & Amortization 1,266 1,176 1,199 1,259 Net Interest 1,635 1,154 808 525 Other Income 2,180 87 441 474 Profit before Tax (6,871) 4,074 7,032 9,789 Total Tax 1,406 1,958 Profit after Tax (6,871) 4,074 5,625 7,831 Ex Od items / Min. Int. 939 (350) Adj. PAT (7,810) 4,424 5,625 7,831 Avg. Shares O/S (m) 599.5 599.5 599.5 599.5 EPS (Rs.) (13.0) 7.4 9.4 13.1 Cash Flow Abstract (Rs m) C/F from Operations (1,741) 3,904 8,138 9,635 C/F from Investing 370 (259) (3,300) (3,500) C/F from Financing 1,557 (2,796) (1,308) (1,525) Inc. / Dec. in Cash 185 849 3,531 4,610 Opening Cash 51 236 1,085 4,615 Closing Cash 236 1,085 4,615 9,225 FCFF (3,727) 3,041 4,331 6,110 FCFE (4,705) (856) 3,831 5,110 Key Financial Metrics Growth Revenue (%) (17.5) (3.0) 20.3 22.6 EBITDA (%) (23.1) (202.7) 36.1 29.1 PAT (%) (22.2) (156.6) 27.2 39.2 EPS (%) (30.5) (156.6) 27.2 39.2 Profitability EBITDA Margin (%) (11.7) 12.4 14.1 14.8 PAT Margin (%) (14.9) 8.7 9.2 10.4 RoCE (%) (198.7) 188.6 94.4 65.4 RoE (%) 69.1 (46.7) (160.6) 242.8 Balance Sheet Net Debt : Equity (1.1) (1.5) (7.5) (0.1) Net Wrkng Cap. (days) (97) (93) (89) (78) Valuation PER (x) (5.0) 8.9 7.0 5.0 P / B (x) (3.1) (6.2) (56.7) 5.5 EV / EBITDA (x) (8.6) 7.7 5.2 3.5 EV / Sales (x) 1.0 1.0 0.7 0.5 Earnings Quality Eff. Tax Rate 20.0 20.0 Other Inc / PBT (10.2) 12.8 6.3 4.8 Eff. Depr. Rate (%) 6.0 5.5 5.0 4.6 FCFE / PAT 60.3 (19.4) 68.1 65.2 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Shareholder's Funds (12,645) (6,316) (691) 7,141 Total Debt 14,185 10,287 9,787 8,787 Other Liabilities Total Liabilities 1,539 3,971 9,096 15,928 Net Fixed Assets 17,138 16,021 17,822 19,562 Goodwill Investments 200 500 1,000 Net Current Assets (15,599) (12,250) (9,225) (4,634) Cash & Equivalents 236 1,085 4,615 9,225 Other Current Assets 8,692 9,732 10,713 11,849 Current Liabilities 24,527 23,067 24,554 25,709 Other Assets Total Assets 1,539 3,971 9,096 15,928 Quarterly Financials (Rs m) Y/e March Q3FY16 Q4FY16 Q1FY17 Q2FY17 Net Revenue 14,600 14,750 15,215 14,004 EBITDA 3,061 2,635 1,924 1,116 % of revenue 21.0 17.9 12.6 8.0 Depr. & Amortization 305 426 449 485 Net Interest 233 463 209 197 Other Income 109 336 224 154 Profit before Tax 2,384 1,079 1,490 589 Total Tax Profit after Tax 2,632 2,081 1,490 589 Adj. PAT 2,384 1,079 1,490 589 Key Operating Metrics ASKM (m) 14,541 12,916 14,889 17,794 RPKM (m) 11,833 11,689 13,980 16,781 RASK 3.6 3.9 4.1 4.2 CASK 4.2 3.6 3.7 3.7 RASK CASK (0.6) 0.3 0.4 0.5 PLF (%) 81.4 90.5 93.9 94.3 Avg aircraft in operation 41.6 39.6 44.0 50.0 Source: Company Data, PL Research. November 28, 2016 4
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