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SBICap Securities
SpiceJet (Buy)
CMP: ₹111.90
Target: ₹123
SpiceJet is a low-cost airline headquartered in Gurgaon, India. It is the third largest airline in the country by number of domestic passengers carried, with a market share of 13.2 per cent as of March 2017.
SpiceJet’s 4QFY17 profits, at ₹41.6 crore, were impacted by a sharp uptick in fuel costs (up 42 per cent y-o-y) amid continued pressure on fares. While SpiceJet continues to enjoy superior RASK, we believe premiums could narrow down because of increasing competitive intensity. Hence, further reduction of non-fuel CASK will be crucial with the induction of Boeing 737 MAXs from FY19.
We remain upbeat on the sector, with the cost scenario turning benign (crude and rupee). With volume growth likely to touch 18-20 per cent, we believe SpiceJet is well placed to deliver healthy earnings growth.
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