HSBC Global

SpiceJet (Hold)

Target: ₹82

CMP: ₹78.30

SpiceJet reported a net loss of ₹570 crore, slightly worse than our expectation of a ₹500-crore loss. It was driven by higher-than-expected unit costs and unexpected losses at the cargo division because of high fuel prices. The company reported ₹60-crore loss at its cargo division for Q2 since it wasn’t able to pass on higher fuel prices.

However, it has renegotiated the contracts with its customers for the higher fuel price, which means the company expects the cargo division to be profitable, going ahead. Its passenger yield was slightly better than our forecast.

As usual, management didn’t offer any outlook. However, demand has picked up in the last few weeks. SpiceJet moved its focus from passenger to cargo business when passenger demand was very soft.

There are tangible catalysts for the stock, including the return of 737 MAX aircraft, compensation from Boeing, a stake sale in its cargo business, etc. While all these catalysts are tangible, they are yet to play out.

We have adjusted our forecasts following the Q2 results, cutting our FY22 forecasts sharply but raising FY23-24 forecasts.