AVIATION:EIC ANALYSIS

Submitted by: Abhinav Sinha Dildar Singh Ranadip Madhu

ECONOMY PROJECTION
Growth Prospects
In 2010/2011, the 8.5 per cent growth rate was reported in economic out look. Due to inflationary situation, the projected growth rate 8.2 per cent, must be treated as high and respectable.

Structural Factors
Many structural changes have taken place due to high inflation, excessive govt. debt, political stability : Domestic savings rate has come down to 33.7 percent Savings of the private corporate would be at 8 percent of GDP Savings of household sector would be 23.5 percent of GDP

Economic Trends and Issues

Goldman Sachs predicts that "from 2007 to 2020, India s GDP per capita in US$ terms will quadruple", Indian economy will surpass the United States (in US$) by 2043. Report stated that India would continue to remain a low-income country for decades to come. If India could fulfil its growth potential it could be a "motor for the world economy"

AVIATION INDUSTRY

Not very attractive!!

TYPICAL CHARACTERISTICS: Low Profit Margin both during the periods of economic growth and slowdown Debt is a major contributor to the increased sales and profitability of an airline, an excess of debt leads to excessive interest expense and hence acts as a deterrent to the performance The performance of the company in this sector depends mainly on its financial strategies and operational efficiency adopted

COMPANY: SPICEJET
SpiceJet is a low cost, no frills airlines operating in India. It started operations during early 2000s catering to metropolitans and tier 1 cities Maintaining a policy of negligible D/E ratio, SpiceJet encountered a negative Net Profit Margin and zero EPS till 2010 Being practically debt free the company does not enjoy much of a tax shield Being low cost, it was the first choice of a majority of fliers flying just after recession. This phenomenon resulted in increased sales and PAT in the years 2008-2010 with sales almost doubling it However an interest expense of almost 15% of PBIT has reduced its profitability. Despite the increased interest expense, the increase in sales has helped SpiceJet realize a positive Net profit Margin and EPS by 2010 CAGR of stock prices has been positive over last ten years signaling growth prospects of the company and growing investor confidence in the company s strategies adopted

1/26/2012

IIM Kozhikode