Equity Research on Spicejet with a buy recommendation and a target price of INR 133.34. The valuation was done on 6th June 2017. The market price on 6/6/2017 was INR 105.65.
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Spicejet Equity Research Report
1. A N A L Y S I S O N S P I C E J E T
0 9 / 0 8 / 2 0 1 7
- A n u p r e e t , A i s h a n i , S h u b h a m ,
S i d d h a r t h , K u n a l , R a h u l -
2. A N A L Y S I S A N D
V A L U A T I O N G r o u p 4
SPICEJET LIMITED
BUY RECOMMENDATION
3. P R O F I T M A K I N G
Net profit for FY 2017 stood at INR 430.7 Crore,
making this the second successive year of profitable
growth.
H I G H E B I T D A R
On an EBITDAR basis, the profit is INR 363 crore for
the fourth quarter and INR 1654.9 crore for the fiscal
2017.
H I G H P A X L O A D
Its load factor of over 90% for 24 months in a row has
no parallel globally.
BUSINESS DESCRIPTION
Introduction Economy Industry Company Valuation Financial Analysis
4. I N D I A N E C O N O M Y
4 - S T R O N G F A C T O R S
G D P F O R E C A S T - > 7 % - 8 %
A c c o r d i n g t o I M F ,
G D P o f I n d i a w i l l
g r o w a t 7 - 8 % i n
c o m i n g f i s c a l s .
U D A N S C H E M E
R e g i o n a l C o n n e c t i v i t y
S c h e m e f o r c o m m o n
c i t i z e n . T a r g e t o f
1 . 3 M P a s s e n g e r s b y
2 0 1 9 .
L O W I N F L A T I O N
T h e I n f l a t i o n h a s
d e c l i n e d s i g n i f i c a n t l y
f r o m 4 . 6 % i n F Y 1 6 T O
3 . 1 % i n F Y 1 7
O I L P R I C E S & E X C H A N G E
R A T E S
I n c r e a s e i n f u e l c o s t
b y 4 6 % a n d
d e p r e c i a t i o n o f I N R
a f f e c t e d a i r l i n e
i n d u s t r y
Introduction Economy Industry Company Valuation Financial Analysis
5. PORTER'S 5 FORCES
Rivlary within the
industry
5
Intense rivlary due to staggered industry which as it has arrived to a mature stage
Pricing strategies and wars are very common in the industry
Poor yield environment
Threat of new entrant 2
large amount of capital needed to operate
leverages the efficiencies and the synergies from the economies of scale
airlines willing to incur in losses or by lowering fares so they maintain competitiveness
Bargaining power of
customer
4
There are two different groups of buyers: the individual flyers& travel agencies
airlines to give customers the best mix of options to choose from
switching costs in the industry are very low(increased due to third parts websites and apps
Threat of substitute 1
currently there isn’t any technology or mean of transportation that is as fast and reliable as
an airplane
business traveling, webcast services and other technologies are considered an indirect
substitute
the customer will evaluate other means for short distances because of the fact that it is often
less expensive
Bargaining power of
suppliers
4
limited number of manufacturers and high switching costs
the transition costs in training and adapting facilities will be extremely high
Introduction Economy Industry Company Valuation Financial Analysis
0
1
2
3
4
5
Rivlary
within the
industry
Threat of
new entran
Bargaining
power of
customer
Threat of
substitute
Bargaining
power of
suppliers
6. 0 1
R O B U S T D E M A N D
0 2C I V I L A V I A T I O N
P O L I C Y
0 3
I N C R E A S E I N L O W
C O S T C A R R I E R S
0 4
I N P U T C O S T S
0 5E X C H A N G E R A T E
0 6
M A R K E T G R O W T H
PAX increased
by 22% for the
industry in FY17
Introduction Economy Industry Company Valuation Financial Analysis
Enhancement in
ease of doing
business
CAGR 17% -
Domestic, CAGR
60% -
International
Increased by
46% last
quarter, but still
low
Rupee is
depreciating –
Point of concern
IATA Estimates –
15% growth in
coming fiscals
7. 01
FINANCIAL STABILITY
Using Profits to reduce
expensive working capital
financing
02
RESERVES
Stabilising balance sheet by
creating reserve to address
seasonality pressures
03
FLEET SIZE
33- Boeing 737 NG
18- Bombardier
Order of 205 Aircrafts
04
REVENUE ENHANCEMENT
improving loads through
advance purchase sales
and promotions designed
to stimulate the market.
05
BRAND POSITIONING
SpiceJet is positioned as
the ‘antidote’ to travel
boredom. The airline is
credited with bringing the
fun, the
anticipation, the
experience or in other
words, the ‘spice’ back in
flying
D E V E L O P M E N T S
I N S P I C E J E T
Introduction Economy Industry Company Valuation Financial Analysis
8. V A L U A T I O N I N F O G R A P H I C
O F S P I C E J E T
Introduction Economy Industry Company Valuation Financial Analysis
₹ 0.00
₹ 200.00
₹ 400.00
₹ 600.00
₹ 800.00
₹ 1,000.00
₹ 1,200.00
₹ 1,400.00
₹ 0.00
₹ 2,000.00
₹ 4,000.00
₹ 6,000.00
₹ 8,000.00
₹ 10,000.00
₹ 12,000.00
₹ 14,000.00
₹ 16,000.00
₹ 18,000.00
₹ 20,000.00
2018E 2019E 2020E 2021E 2022E 2023E 2024E
Forecasted Value
Revenue Expenses EBIT
Competitior Jet Airways Indigo Spice Jet Industry Average
EV/Core EBITDA(x) 18.65 16.65 16.21 17.17
PE 15.42 24.55 19.6 19.85666667
₹ 105.65
₹ 133.34
₹ 0.00
₹ 20.00
₹ 40.00
₹ 60.00
₹ 80.00
₹ 100.00
₹ 120.00
₹ 140.00
₹ 160.00
CMP TP
PRICE
0
500
1000
1500
2000
2500
₹10.32
₹23.99
₹37.67
₹51.34
₹65.01
₹78.69
₹92.36
₹106.03
₹119.70
₹133.38
₹147.05
₹160.72
₹174.40
₹188.07
₹201.74
₹215.42
₹229.09
₹242.76
₹256.44
MonteCarlo Simulation
Buy
SellRECOMMENDATION:
BUY
CMP IS TAKEN
AS CLOSING
PRICE OF 5TH
JUNE 2017
93% BUY PROBABILITY
9. H I S T O R I C A L F I N A N C I A L S
F I N A N C I A L A N A L Y S I S
Introduction Economy Industry Company Valuation Financial Analysis
Turnover Ratio Spicejet
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
Sales 5,600.68 6,304.23 5,243.07 5,088.07 6,191.14
Assets 3,071.01 2,947.02 2,606.59 2,703.79 2,988.00
Turnover Ratio 1.82 2.14 2.01 1.88 2.07
Operating Margin Spicejet
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
PBIT 9.34 (715.64) (456.75) 579.04 652.12
Sales 5,600.68 6,304.23 5,243.07 5,088.07 6,191.14
Operating Margin 0.00 (0.11) (0.09) 0.11 0.11
Interest Burden Spicejet
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17
PBT (191.08) (1,003.24) (687.05) 407.20 427.02
PBIT 9.34 (715.64) (456.75) 579.04 652.12
Interest Burden (20.46) 1.40 1.50 0.70 0.65
₹ -800.00
₹ -600.00
₹ -400.00
₹ -200.00
₹ -
₹ 200.00
₹ 400.00
₹ 600.00
₹ 800.00
₹ -
₹ 1,000.00
₹ 2,000.00
₹ 3,000.00
₹ 4,000.00
₹ 5,000.00
₹ 6,000.00
₹ 7,000.00
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Revenue Power & Aircraft Fuel Expenses Operating Profit