SpiceJet down 5.9%: Will Jhunjhunwala's T20 shot end badly?

Shares in SpiceJet fell 5.9 percent in trade today after the budget carrier was hit by fresh bad news in the form of airports revoking its credit facility with respect to charges it has to pay to operate flights.

The news comes close on the heels of the firm garnering bad press as it moved to ground several unprofitable flights at the last minute, which led to much resentment among customers whose schedules went awry.

Amid this came the news last week (Friday) that Big Bull Rakesh Jhunjhunwala had bought 75 lakh shares of the company – amounting to 1.4 percent of total equity – at a price of about Rs 18.5 per share, in a deal valued at Rs 13.4 crore.

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SpiceJet shares immediately took off following the news as investors looked at the stake buy as a vote of confidence from the maverick investor and the stock price hit a high of Rs 21.35 on Monday.

But with today’s decline, it has nearly come back to Jhunjhunwala’s average purchase price amid fresh murmurs the airlines is going to go the Kingfisher way.

There are several indicators that point towards the intensity of financial distress the firm is going through: a few months back, it delayed providing Form 16 to its employees (used to file tax returns), which could have meant the carrier had failed to forward income tax deducted from salaries to the government; employees’ salary for the month of November were delayed though the firm attributed the delay to a ’technical’ reason; the decision to ground some of its aircraft fleet and now airports deciding to put the company’s flight operations on cash mode.

Eerily, each of these developments took place at Kingfisher a few months before it finally went bust.

What of Jhunjhunwala’s investment? The Big Bull always maintains he does not discuss his portfolio but if one looks closely, he has often freely discussed his investment picks - be it Titan, which he has held on to for decades, or his erstwhile investment Praj Industries.

Where Jhunjhunwala keeps his guard up is his trading portfolio, which he keeps separate from his investment portfolio. He admits he generates capital for his investments through trading.

But at an investor summit CNBC-TV18 hosted to celebrate its 15th birthday earlier this week, Jhunjhunwala candidly admitted Spice was a trading punt rather than an investment. “Generally, I play Test matches but sometimes, I play T20 cricket too,” he said.

Amid some good-natured ribbing by some of his friends in the audience who dubbed it a bad move, he added for good measure: “I am going to make a lot of money on this trade. I am already making it.”

In an interview with Mumbai Mirror recently, Jhunjhunwala shed some more light on the trade, saying he was expecting airlines to turn around on the back of falling crude prices (which have fallen 35 percent from the top this year).

But as of now, it appears SpiceJet will need more than falling crude prices if it has to make it out whole, given the fact that its promoters (the Maran brothers) have ruled out further capital infusion that it dearly needs.

It must be remembered that Jhunjhunwala had purchased 25 lakh SpiceJet shares each in July 2012 and May 2013 at Rs 30.7 and Rs 38.94, according to BSE data, and while it is not known if he has held on to that purchase, and as we pointed out earlier, he could well be averaging the purchase.

The earlier purchases did not show up in BSE shareholding records as it constituted less than 1 percent stake and hence were not declared but their fate will also be known when SpiceJet files the December quarter’s shareholding structure during earnings declaration - that is if he continues to hold on to his stake till then.