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Elara is bullish on SpiceJet as it has pegged a target price of ₹203 on the stock, which implies an upside potential of 71 per cent from current levels.
Rise in yields
“The company is our top pick in the aviation space, based on our bullish stance on regional market growth, where it has highest capacity,” Elara said. However, other brokerage firms differ, and many including ICICI Securities and HDFC Securities have even downgraded their ratings to Neutral/Hold on the stock amid weak outlook for the sector.
SpiceJet’s stock closed up a marginal 0.13 per cent at ₹118.95 on Monday.
SpiceJet reported an increase in yields (unlike InterGlobe Aviation) and robust passenger growth (over 20 per cent), which led to strong topline growth of 25 per cent year-on-year in the March 2018 quarter. However, the company’s net profit at about ₹46 crore (up 11 per cent) came in below estimates of around ₹60-70 crore, thanks to the spike in crude prices.
Analysts predict higher crude oil prices and stronger dollar, at least for FY19, which will affect all aviation companies, including SpiceJet. This, along with capacity addition by SpiceJet, will lead to profitability pressures, analysts estimate. The company plans to add 19 Boeing 737 aircraft and eight Bombardier Q400 aircraft by FY19 to its existing fleet of 36 Boeing and 22 Bombardier Q400 aircraft.
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