Shares of SpiceJet Ltd has been seeing wild swings of late, with the aviation firm now reporting a Rs 431 crore loss for the September quarter and announcing raising of Rs 2,250 crore of fresh capital. Nuvama Institutional Equities said SpiceJet's capital raise should allow the airline replay outstanding dues and resume certain aircraft. But given that 40 per cent of its fleet is grounded, coupled with weak balance sheet, the brokerage retained its ‘HOLD’ rating on the stock.
Nuvama said SpiceJet's lack of transparency in sharing its key operational data remains a major concern. It said SpiceJet reported an industry-leading PLF of 87 per cent and that its yield up 8 per cent YoY at Rs 5.1, led by higher domestic airfares and limited capacities. ASKMs declined 26 per cent YoY, Nuvama said, owing to grounding of aircraft due to operational difficulties.
"Going forward, we expect yields to cool down in H2FY24, led by an increase in capacity on the back of resumption of certain grounded aircraft (added five aircraft in Nov-23). We believe currently ~40% of SJ’s fleet remains grounded," it said while suggesting a share price target of Rs 52 on the stock.
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SpiceJet's board of directors approved raising of fresh capital through issuance of equity shares and warrants on preferential basis. SpiceJet believes that the fresh capital would strengthen financial position, allow for repayment of its existing dues and provide resources for future growth.
"Currently, over five aircraft lessors including Willis Lease Finance filed for insolvency plea against SpiceJet on account of non-payment of dues. Further, during Q2FY24, promoter infused fresh capital of Rs 500 crore (Rs 200 crore received by SpiceJet) while SpiceJet entered into an agreement with Carlyle Aviation Partners (lessor) to convert its Rs 230 crore debt to equity at Rs 48 per share," Nuvama noted.
Nuvama said SpiceJet posted an EBITDAR of Rs 70 crore in Q2FY24 due to lower capacities as number of grounded fleets rises on operational challenges partly offset by rise in PLFs and yields. Nuvama said it has cut its FY25E EBITDAR estimate by 4 per cent but raised its target price by 57 per cent from Rs 33 level earlier on the back of potential for capital infusion.
Nuvama has reduced its FY25 EBITDAR estimate by 4 per cent but raised its target price on the stock by 57 per cent to Rs 52 per share from Rs 33 on the back of potential for capital infusion.
"We factor in a yearly growth of 15 per cent in ASK and RPK over FY23F-25F. We consider a decline in tariff in FY24F due to a 10 per cent reduction in fuel prices and higher tariff in 3QFY23 due to industry capacity constraints (unlikely to sustain). We value the business at 9.5x FY25F EV/EBITDAR, in line with our target multiple for IndiGo," said InCred Equities. This brokerage suggested a target of Rs 42 on the stock.
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