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Goldman Sachs
SpiceJet (Buy)
CMP: ₹120.05
Target: ₹270
We believe a benign fuel environment, higher passenger yields, and lower costs should help SpiceJet’s profitability improve in the coming years (0.30 ₹/ASK (available seat kilometres) in FY21E versus -0.10 ₹/ASK in FY19).
Fifty-nine per cent of Spice Jet’s departures are outside the top-6 metros, and with greater focus on deploying capacity to non-metro routes with lower competition, we see improving yields leading to a 31 per cent revenue CAGR in FY19-22e.
As Jet Airways (not covered) vacates slots and releases Boeing aircraft into the market, SpiceJet has benefited with 130 new slots in the initial round of domestic slot allocations. And, as one of only two Boeing fleet operators in India, SpiceJet plans to add 30 Jet Airways planes to its current fleet of 76 over FY19-22. With increasingly large-scale operations, we expect SpiceJet to benefit from operating leverage.
Valuation: Our 12-m TP of ₹161 (based on 1.3x FY2021E EV/GCI, mid-cycle multiple) implies 33 per cent upside. We expect Spice Jet’s near-term EBITDAR growth — 58 per cent CAGR in FY20-22E on new capacity and favourable crude — to be the strongest in the sector, which should help narrow its valuation gap with IndiGo.
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