SpiceJet facing some rough weather, earnings shaky

Higher oil prices and lower yields have cast a shadow on SpiceJet’s quarterly figures. Bank of America Merill Lynch has maintained its ‘Buy’ recommendation on the company while cutting the price target to Rs 76 from Rs 91. The lower price target is due to lower earning expectations by the company.

[caption id=“attachment_17577” align=“alignleft” width=“380” caption=“Yield for the quarter was down 3.5% year-on-year on account of irrational pricing in the industry. Punit Paranjpe/Reuters”]  [/caption]

A snapshot of the company’s fourth quarter performance review follows, along with the rating rationale.

Thanks to higher fuel costs and less yields, SpiceJet suffered a net loss of Rs 58.6 crore in the fourth quarter of FY11 against a profit of Rs 27.5 crore in the corresponding period of the previous year. Yield for the quarter was down 3.5% year-on-year on account of irrational pricing in the industry. On a full-year basis, the net loss stood at Rs 101 crore.

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The company is in the middle of stepping up its capacity. It has plans to add two more B737s to its current fleet of 30 B737s and also intends to bring in 8-10 Q400s (70-seater turboprops) by March 2012. SpiceJet is also expected to add more short-haul international routes to its network by the third quarter of FY12.

Yields are expected to improve in the holiday season by 6-7% on a q-o-q basis. Higher utilisation should bring SpiceJet closer to the break-even point in the first quarter of FY12. However, aviation turbine fuel (ATF) staying firm could prevent the company from getting back into the profitable mode.

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The broking firm has cut the operating profit before interest, tax, depreciation and amortisation (EBITDA) estimate of SpiceJet by 11% for FY12 and 8% for FY13. The cut has been necessitated due to a hike in average crude assumption by 10% and cut in the yield assumption by 1%. However, traffic assumption has been raised by 3% on account of strong demand and capacity addition.