ICICI Securities

SpiceJet (Buy)

CMP: ₹127.95

Target: ₹175

SpiceJet reported better than expected performance driven by higher topline (driven by 11 per cent growth in fares). Company reported PAT of ₹262 crore, but it includes expected reimbursement of ₹114 crore from Boeing on account of MAX grounding. Adjusting for it, PAT would be ₹150 crore (I-Sec: ₹112 crore). There is some cost creep in employee costs/ airport charges/ fuel costs (due to the older Jet aircraft in fleet), but other expenses are lower even after adjusting for a forex gain (could be due to cost postponement or operating leverage).

We expect SpiceJet to report ₹840 crore/1,090 crore PAT in FY20E/FY21E (25 per cent CAGR between FY18-FY21E) enabled by a positive supply/demand situation post exit of Jet Airways and 50 per cent/40 per cent growth in capacity in FY20E/FY21E. We expect MAX aircraft to operate from FY21E, which should be able to offset the cost inefficiency of ~30 old Jet aircraft.

Maintain buy, with a target price of ₹175 (earlier: ₹156) based on 7x (unchanged) FY21E EV/EBITDAR. We will factor Ind-AS 116 in our estimates with the disclosure of the lease obligation and Right of Use (RoU) asset in the FY19 annual report.

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