Stock corner: SpiceJet top pick in aviation space; target price cut 4.9% to Rs 160
SpiceJet’s (SJ) Q2FY20 EBITDAR (adjusted for forex loss) of Rs. 1.4bn came below estimate due to lower yield. Yield growth of 1.9% YoY belied our 3.5% YoY growth estimate on account of rising competitive intensity induced pricing pressure. Key highlights: fuel CASK fell 0.9% QoQ (estimate 3.3% QoQ) due to on-boarding of smaller B-737 NGs (168 seats) versus SJ’s larger aircraft (189 seats); we expect yields to remain flat YoY in Q3FY20; 3) capacity growth/ PLF at 51%/89% in line with estimate.
Return of 737 Max is expected from Q1FY21, which will boost growth; and non-fuel CASK (adjusted for forex loss) at Rs. 2.5/km is flat QoQ— in line with estimate. We, however, cut Q4FY20E yield growth to 2% YoY (Rs. 173 earlier) leading to 4.9% cut in TP to Rs. 160 (8.0x FY21E EV/EBITDAR). Maintain ‘Buy’ with SJ as our top pick in the aviation space.
While FY20E RPKM growth at 44% has been boosted by addition of 30 B-737 NGs taken from Jet, FY21 growth will be buttressed by addition of 737 Max.
