RESULTS REVIEW 3QFY17 16 FEB 2017

SpiceJet
BUY

INDUSTRY AVIATION Yield wilts

CMP (as on 15 Feb 2017) Rs 60 SpiceJets 3QFY17 results came in below SpiceJet has strong fleet addition plans for the next
expectations. Revenue grew by 12% to Rs 14.6bn, 10-15 years. We expect yield pressure to bottom out
Target Price Rs 75 below our expectation of 15% primarily due to over the next few months as the demonetisation
Nifty 8,725 higher-than-expected pressure on yield. During the impact lessens and new supply is absorbed, leading
Sensex 28,156 quarter, yield was down 9.5% as compared to our to an improvement in profitability.
KEY STOCK DATA estimate of 7%. Adj. PAT was down 41% to Rs 1.4 bn Upgrade to Buy with a TP of Rs 75 based on 8x
Bloomberg SJET IN ASKM\RPKM growth was strong at 24.4%\25.1% Dec18E-EPS.
No. of Shares (mn) 599 respectively with passenger growth at 23.4%.
Highlights of the quarter
MCap (Rs bn) / ($ mn) 36/537 Employee costs increased sharply by 43%\19% on Y-
6m avg traded value (Rs mn) 258 o-Y and Q-o-Q basis respectively. Cost control Yield pressure: Load factor remained at a high level of
initiatives seem to have stabilised, the only surprise 91.3%. Yield pressure was higher due to
STOCK PERFORMANCE (%)
being that of employee costs. The EBITDAR margin demonetisation, which impacted demand. The industry
52 Week high / low Rs 86/55 resorted to price cuts to boost the load factor.
was down 10pp, on higher fuel and employee costs.
3M 6M 12M Other income nearly doubled owing to higher cash
Absolute (%) 0.4 1.6 (14.3) balance. Fleet addition: SpiceJet added 2 aircrafts during the
quarter. ASKM growth was 24.4%, with a load factor of
Relative (%) (6.6) 1.6 (33.8) The Indian airline industry is on a structural growth 91.3%
SHAREHOLDING PATTERN (%) path with growth in excess of 23% over the last 2
Promoters 60.32 years. With crude hardening and supply increasing, Near-term outlook: Yield pressure is expected to
FIs & Local MFs 1.24 the pressure on the profitability continued. With bottom out by 1QFY18, which should improve
FIIs 2.16 recent order for over 200+ aircrafts to Boeing, profitability. Further hardening in Oil remains key risk.
Public & Others 36.28 Financial S ummary
Source : BSE (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY16 FY17E FY18E FY19E
Net Sales 16,424 14,600 12.5 14,004 17.3 50,881 62,408 75,010 88,106
EBITDAR 4,519 2,872 57.3 3,399 33.0 12,376 15,576 19,471 23,571
APAT 1,809 2,399 (24.6) 558 224.0 3,435 4,347 7,276 7,410
Diluted EPS (Rs) 2.5 1.2 104.9 2.4 1.6 5.7 7.3 9.2 9.4
P/E (x) 10.5 8.3 6.5 6.4
Vishal Rampuria EV / EBITDAR (x) 8.8 7.0 5.6 4.6
vishal.rampuria@hdfcsec.com RoE (%) N.A. N.A. N.A. 71.0
+91-22-6639-7325 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 SPICEJET: RESULTS REVIEW 3QFY17

Quarterly Financials Snapshot

Particulars (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Topline was below
Net Sales 16,424 14,600 12 14,004 17
expectations, as yield Aircraft Fuel 4,738 3,666 29 4,300 10
dropped due to Lease Rentals 2,429 2,294 6 2,064 18
demonetisation and Airport Charges 1,215 951 28 1,213 0
increased competition Aircraft Maintenance 2,114 1,458 45 2,093 1
Employee Expenses 1,827 1,280 43 1,531 19
Other Expenses 2,353 1,977 19 1,688 39
EBITDA 1,747 2,973 (41) 1,116 57
Employee costs jumped EBITDAR 4,177 5,267 (21) 3,180 31
sharply owing to new hiring Depreciation 524 465 13 485 8
for fleet expansion in the EBIT 1,224 2,508 na 632 94
coming quarter Other Income 280 142 97 154 81
Interest Cost 78 250 (69) 197 (60)
PBT 1,426 2,399 (41) 589 142
Tax - - N.A. - N.A.
EBITDAR margin dropped by
APAT 1,426 2,399 (41) 589 142
10pp on higher fuel and EO Items (383) - 31
employee costs RPAT 1,809 2,399 (25) 558 224
Source: Company, HDFC sec Inst Research

EO related to provision write

back for earlier years Margin Analysis
3QFY17 3QFY16 YoY (bps) 2QFY17 QoQ (bps)
Aircraft Fuel % Net Sales 28.8 25.1 373 30.7 (186)
Lease Rentals % Net Sales 14.8 15.7 (92) 14.7 6
Airport Charges % Net Sales 7.4 6.5 89 8.7 (126)
PAT margin dropped by Aircraft Maint % Net Sales 12.9 10.0 288 14.9 (208)
775bps YoY Employee Expenses % Net Sales 11.1 8.8 236 10.9 20
Other Expenses % Net Sales 14.3 13.5 78 12.1 227
EBITDA Margin (%) 10.6 20.4 (972) 8.0 267
EBITDAR Margin (%) 25.4 36.1 (1,065) 22.7 272
Tax Rate (%) - - - - -
PAT Margin (%) 8.7 16.4 (775) 4.2 447
Source: Company, HDFC sec Inst Research

Page | 2
 SPICEJET: RESULTS REVIEW 3QFY17

Key Assumptions
FY15 FY16 FY17E FY18E FY19E
Cost rationalisations seem to Fleet Size 32 43 51 56 63
be stabilising now ASKM (in mn) 14,541 12,916 16,493 19,269 21,914
YoY Growth (%) (21.4%) (11.2%) 27.7% 16.8% 13.7%
Load Factor 81% 91% 91% 90% 91%
RPKM (in mn) 11,833 11,700 15,083 17,342 19,942
YoY Growth (%) (11.5%) (1.1%) 28.9% 15.0% 15.0%
Yield (Rs) 4.06 3.81 3.63 3.78 3.86
YoY Growth (%) (6.0%) (6.2%) (4.7%) 4.1% 2.1%
Operating Revenue (Rs mn) 52,015 50,827 62,408 75,021 88,119
YoY Growth (%) (17.5%) (2.3%) 22.8% 20.2% 17.5%

RASK 3.58 3.94 3.78 3.89 4.02

Aircraft Fuel/ASKM 1.66 1.08 1.12 1.20 1.20
Brent Crude (USD/bbl) 82.7 49.4 46.0 55.0 55.0
Employee Cost/ASKM 0.37 0.38 0.41 0.38 0.39
Lease Rental/ASKM 0.82 0.87 0.58 0.57 0.60
Other Operating Exp./ASKM 1.41 1.52 1.31 1.30 1.35
We have factored in a CASK 4.03 3.68 3.42 3.45 3.54
dilution of warrant Non-Fuel Op.Exp/ASKM 2.60 2.78 2.31 2.25 2.34
conversion only in FY18E, as OPASK (0.45) 0.25 0.36 0.44 0.48
now we dont expect the Source: Company, HDFC sec Inst Research
warrant issue to be sorted
out in the near term Change In Estimates
FY17E FY18E
Particulars (Rs mn)
New Old % Change New Old % Change
Revenues 62,408 64,407 (3.1) 75,010 75,524 (0.7)
EBITDA 15,576 17,845 (12.7) 19,471 21,060 (7.5)
Adj. PAT 4,347 7,036 (38.1) 7,276 8,607 (15.5)
EPS (Rs.) 7.3 11.9 (39.1) 9.2 10.9 (15.4)
Source: HDFC sec Inst Research

Page | 3
 SPICEJET: RESULTS REVIEW 3QFY17

Structural growth remains strong

The passenger traffic growth has been strong over the past 2
years. The benign crude prices, higher economic activity and
rising income levels has supported this growth. The
penetration level, as measured by annual seat per capita,
remains low and offers huge potential.

Passenger growth trend Annual Seat Per Capita (CY14)

Passenger (Mn) Growth - RHS
6.00
120.0 25.0% 4.79
5.00
100.0
20.0% 4.00
80.0
15.0% 3.00 2.59
60.0 2.00
10.0% 1.03 1.12
40.0 1.00 0.65
0.35 0.37 0.41 0.48
0.08
5.0%
20.0 0.00

Thailand

Norway
Russia

Brazil

Japan
Malaysia

USA
India

Indonesia
China
0.0 0.0%
CY12 CY13 CY14 CY15 CY16

Source: DCGA, HDFC sec Inst Research Source: Indigo RHP, CAPA

Sensitivity of FY18 EPS on Oil And Currency Sensitivity of FY18 EPS on Yield And Load Factor
Crude Oil (S/bbl) Yield (Rs)
51 53 55 57 59 3.58 3.68 3.78 3.88 3.98
66 12.2 11.1 10.1 9.1 8.0 88% 5.3 6.7 8.0 9.4 10.8

Load Factor
67 11.8 10.7 9.7 8.6 7.6 89% 5.9 7.2 8.6 10.0 11.4
Rupee\$

68 11.4 10.3 9.2 8.2 7.1 90% 6.4 7.8 9.2 10.6 12.0
69 11.0 9.9 8.8 7.7 6.6 91% 7.0 8.4 9.8 11.2 12.7
70 10.6 9.5 8.4 7.3 6.2 92% 7.5 9.0 10.4 11.8 13.3
Source: HDFC sec Inst Research Source: HDFC sec Inst Research

Page | 4
 SPICEJET: RESULTS REVIEW 3QFY17

SpiceJets Rising Capacity (ASKM) Strong Growth In RPKM

Strategy of boosting revenue ASKM (mn) YoY (%) - RHS RPKM (mn) YoY (%) - RHS
6,000 60.0 4,500 80.0
through a higher load factor % %
continues 4,000 60.0
5,000 40.0
3,500
40.0
4,000 20.0 3,000
2,500 20.0
3,000 0.0
2,000 0.0
2,000 -20.0 1,500
-20.0
1,000
1,000 -40.0
500 -40.0
0 -60.0 0 -60.0

3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Spicejet has consistently
maintained load factor at
~90% and its market share in Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
last five quarters

Consistent Healthy Load Factor Stable Market Share

100.0 % %

19.6
21.0

91.1

91.5
90.9
95.0 89.5

18.3
19.0

19.9
90.0
83.3

91.3
91.2
17.0
90.7
85.0
It has 12.8% market share

18.1
79.1

14.1

13.1
80.0 15.0

12.9
with a fleet size of 50
71.4

82.0

81.4

75.0

11.6
13.0
70.0

12.8
12.9
11.0

12.4
12.3
70.2

65.0
9.0
60.0

9.4
55.0 7.0
50.0 5.0
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 5
 SPICEJET: RESULTS REVIEW 3QFY17

Focus On International Business To Continue Revenue Growth To Continue With New Capacity
Domestic International Revenue (Rs mn) YoY (%)
100.0% 20,000 % 100%
International operations 90.0% 18,000 80%
contributed 22% to its 80.0% 16,000
60%
70.0% 14,000
capacity 40%
60.0% 12,000
50.0% 10,000 20%
40.0% 8,000 0%
30.0% 6,000
-20%
20.0% 4,000
10.0% 2,000 -40%
Yields dropped by 9.5%
0.0% 0 -60%

3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Apart from regulatory Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
(aviation policy), economic
and competition risks (lower Yield under pressure NPM under pressure
ticket prices), the aviation APAT APAT Margin (%)
sector is facing the threat of 4.50
4.08

3,000 Rs mn % 20.0
4.06
3.97

uncertain crude oil prices 15.0

3.79
4.00 2,000
10.0
1,000
5.0
3.73
3.50
3.66

3.67
0
3.47

0.0

3.51
3.00 -1,000 -5.0
-10.0
-2,000
2.50 -15.0
-3,000 -20.0
2.00 -4,000 -25.0
3QFY15

4QFY15

1QFY16

2QFY16

3QFY16

4QFY16

1QFY17

2QFY17

3QFY17

3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 6
 SPICEJET: RESULTS REVIEW 3QFY17

Income Statement Balance Sheet

Year ending Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E Year ending Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 52,015 50,881 62,408 75,010 88,106 Total Shareholders Funds (12,645) (6,316) (545) 6,731 14,141
Growth (%) (17.5) (2.2) 22.7 20.2 17.5 Total Debt 14,185 14,362 9,494 8,282 6,958
Aircraft Fuel 24,096 13,920 18,421 23,077 26,396 Other Long -term Liabilities 255 220 220 220 220
Employee Expenses 5,375 4,928 6,740 7,351 8,634 Long-term Trade Payables 1,682 - - - -
Lease Rental 8,644 8,054 9,632 10,957 13,065 Long -term Provisions & Others 153 2,822 2,822 2,822 2,822
Other Operating Expenses 20,483 19,657 21,671 25,111 29,504 TOTAL SOURCES OF FUNDS 3,629 11,088 11,991 18,055 24,141
EBITDA (6,582) 4,322 5,943 8,514 10,507 APPLICATION OF FUNDS
EBITDA Margin (%) (12.7) 8.5 9.5 11.4 11.9 Net Block 17,138 16,021 15,660 14,737 13,733
EBITDA Growth (%) (22.7) (165.7) 37.5 43.3 23.4 CWIP - - - - -
EBITDAR 2,062 12,376 15,576 19,471 23,571 Investments - - - - -
EBITDAR Margin (%) 4.0 24.3 25.0 26.0 26.8 LT Loans & Advances 2,314 3,029 2,314 2,314 2,314
Depreciation 1,266 1,176 1,893 1,973 2,053 Other Assets - 200 2,072 2,450 2,843
EBIT (7,849) 3,146 4,050 6,541 8,453 Total Non-current Assets 19,453 19,250 20,047 19,502 18,891
Other Income (Incl. EO Items) 2,613 1,443 1,143 1,143 1,143 Inventories 451 665 846 1,053 1,228
Interest 1,635 1,154 846 409 334 Debtors 1,217 434 1,664 2,000 2,349
PBT (6,871) 3,435 4,347 7,276 9,263 Other Current Assets 414 647 1,248 1,500 1,762
Tax (Incl Deferred) 0 0 0 0 1,853 Cash & Equivalents 580 2,331 6,855 15,004 26,583
APAT (6,871) 3,435 4,347 7,276 7,410 Short Term Loans and Advances 3,951 3,710 3,951 3,951 3,951
EO (Loss) / Profit (Net Of Tax) 862 (637) (383) - - Total Current Assets 6,613 7,788 14,565 23,509 35,873
RPAT (7,733) 4,072 4,730 7,276 7,410 Creditors 10,105 7,762 8,697 9,514 11,102
APAT Growth (%) (31.5) (150.0) 26.5 67.4 1.9 Other Current Liabilities & Provns 12,332 8,188 14,586 16,105 18,331
Adjusted EPS (Rs) (13.8) 5.7 7.3 9.2 9.4 Total Current Liabilities 22,437 15,950 23,284 25,618 29,433
EPS Growth (%) (29.0) (141.5) 26.5 27.2 1.9 Net Current Assets (15,824) (8,162) (8,719) (2,110) 6,440
Source: Company, HDFC sec Inst Research TOTAL APPLICATION OF FUNDS 3,629 11,088 11,991 18,055 24,141
Source: Company, HDFC sec Inst Research

Page | 7
 SPICEJET: RESULTS REVIEW 3QFY17

Cash Flow Statement Key Ratios

Year ending Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT (6,871) 3,435 4,730 7,276 9,263 GPM 53.7 72.6 70.5 69.2 70.0
Non-operating & EO items (134) 383 - - EBITDA Margin (12.7) 8.5 9.5 11.4 11.9
Interest expenses 1,439 997 846 409 334 APAT Margin (13.2) 6.8 7.0 9.7 8.4
Depreciation 1,266 1,176 1,893 1,973 2,053 RoE N.A. N.A. N.A. N.A. 71.0
Working Capital Change 258 (2,468) 5,081 1,540 3,028 RoIC (or Core RoCE) N.A. N.A. N.A. N.A. N.A.
Tax Paid (68) (3) - - - RoCE (150.9) 42.8 36.1 45.5 39.6
OPERATING CASH FLOW ( a ) (4,109) 3,137 12,933 11,197 14,678 EFFICIENCY
Tax Rate (%) 0.0 0.0 0.0 0.0 20.0
Capex (117) (532) (1,533) (1,050) (1,050)
Fixed Asset Turnover (x) 2.4 2.4 2.9 3.3 3.7
Free Cash Flow (FCF) (4,226) 2,606 11,400 10,147 13,628
Inventory (days) 3.1 3.5 4.0 4.6 4.7
Investments - (200) - - -
Debtors (days) 9.7 9.7 9.7 9.7 9.7
Non-operating Income 2,608 191 (1,872) (378) (393)
Other Current Assets (days) 8.2 5.1 6.5 6.6 6.7
INVESTING CASH FLOW ( b ) 2,491 (540) (3,405) (1,428) (1,443) Payables (days) 64.2 60.2 56.2 52.2 52.2
Debt Issuance/(Repaid) (996) (2,683) (4,868) (1,212) (1,324) Other Current Liab & Provns (days) 72.8 68.2 62.1 57.6 56.7
Interest Expenses (1,454) (1,366) (846) (409) (334) Cash Conversion Cycle (days) (116) (110) (98) (89) (88)
Others 3,255 1,617 - - - Debt/EBITDA (x) (2.2) 3.3 1.6 1.0 0.7
FCFE (3,422) 174 5,686 8,527 11,971 Net D/E (x) N.A. N.A. N.A. N.A. N.A.
Share Capital Issuance 999 - 1,041 - - Interest Coverage (x) (4.8) 2.7 4.8 16.0 25.3
Dividend - - - - - PER SHARE DATA (Rs)
FINANCING CASH FLOW ( c ) 1,804 (2,432) (4,673) (1,620) (1,657) Adj. EPS (13.8) 5.7 7.3 9.2 9.4
NET CASH FLOW (a+b+c) 185 165 4,855 8,149 11,578 CEPS (11.6) 8.8 9.8 11.7 12.0
EO Items, Others Dividend - - - - -
Closing Cash & Equivalents 236 745 7,186 15,004 26,583 Book Value (22.6) (10.5) (0.9) 8.5 17.9
Source: Company, HDFC sec Inst Research VALUATION
P/E (x) N.A. 10.5 8.3 6.5 6.4
P/BV (x) (2.7) (5.7) (66.0) 7.0 3.3
EV/EBITDA (x) (16.5) 25.1 18.2 12.7 10.3
EV/Revenues (x) 2.1 2.1 1.7 1.4 1.2
OCF/EV (%) (3.8) 2.9 11.9 10.3 13.6
FCF/EV (%) (3.9) 2.4 10.5 9.4 12.6
FCFE/Mkt Cap (%) (9.5) 0.5 15.8 23.7 33.3
Dividend Yield (%) - - - - -
Source: Company, HDFC sec Inst Research

Page | 8
 SPICEJET: RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Spicejet TP
Date CMP Reco Target
100 21-Apr-16 69 BUY 89
20-May-16 80 NEU 79
90
11-Jul-16 66 NEU 71
80 8-Sep-16 65 NEU 70
70 28-Nov-16 66 NEU 72
60
10-Jan-17 65 NEU 73
16-Feb-17 60 BUY 75
50
Rating Definitions
40
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Aug-16
Apr-16

Jan-17
Feb-16

Jul-16

Sep-16

Feb-17
Nov-16
Jun-16
May-16

Dec-16
Mar-16

Oct-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Page | 9
 SPICEJET: RESULTS REVIEW 3QFY17

Disclosure:
I, Vishal Rampuria, CA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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as an officer, director or employee of the subject company. We have not received any compensation/benefits from the subject company or third party in connection with the Research
Report. HDFC Securities Ltd. is a SEBI Registered Research Analyst having registration no. INH000002475

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