Aviation

India I Equities
Result Update
Change in Estimates  Target  Reco 

15 February 2017

Rating: Buy
SpiceJet
Target Price: `150
Best bet in the aviation sector; Buy Share Price: `65

Driven by a ~24% rise in passenger traffic and ~11% drop in gross

average yield per passenger, SpiceJet’s Q3 FY17 revenue was up 13% Key data SJET IN / SPJT.BO
yoy, to `16.4bn. Its revenue CAGR over FY17-19 is expected to come at 52-week high / low `95 / `55
19%. In the next two years, aviation turbine fuel is expected to be Sensex / Nifty 28156 / 8725
steady. The outlook continues to be robust. We retain our Buy rating. 3-m average volume $2.8m
Market cap `89.9bn / $1362m
Q3 FY17 results. At `16.4bn, revenue was up 13% yoy, driven by 24% Shares outstanding 599.5m
growth in passenger traffic and ~11% decline in the gross average yield per
passenger. Revenue per ASK was `3.8, in line with our estimate. Most Shareholding pattern (%) Dec'16 Sep'16 Jun'16
Promoters 60.3 60.3 60.3
expenses were in line with our estimates except staff and other expenses
- of which, Pledged 33.4 33.4 33.4
which exceeded our expectations. EBITDAR was 25.4%, compared to 22.7% Free Float 39.7 39.7 39.7
the previous quarter. PAT came at `1.8bn, down 24% yoy. - Foreign Institutions 2.2 2.1 2.4
- Domestic Institutions 1.1 0.0 0.0
Fading concerns about dilution. With the recent developments (BSE and - Public 36.5 37.6 37.3
SEBI both refusing the issue of warrants), concerns about the ~24% dilution
are fading, and we believe a settlement through arbitration is possible. Estimates revision (%) FY17e FY18e
Erstwhile promoters (Maran and Kal Airways Pvt. Ltd.) have demanded Sales 2.0 3.4
adequate monetary compensation in the arbitration settlement. EBITDA -11.9 -13.4
PAT -24.7 -12.2
Rising ATF prices a concern. The average ATF price climbed from `46.6 a
Financials (YE Mar) FY17e FY18e
litre in Q3 FY16 to `50.1 a year later. The World Bank estimates that
Sales (` m) 62,450 74,897
international crude prices would hold steady in the next two years, at between
Net profit (` m) 4,942 7,743
$40 and $60 a barrel.
EPS (`) 8.2 12.9
Change in estimates. Due to higher traffic growth and rising crude oil Growth (%) 43.8 56.7
`
prices, we have revised our estimates. While we raise our FY17 and FY18 PE (x) 18.2 11.6
revenues 2% and 3% respectively, we cut our earnings 25% and 12%, broadly PBV (x) -91.2 93.1
driven by higher fuel expenses and lower other income. RoE (%) * -135.4 -79,286.7
RoCE (%) * 121.6 172.6
Valuation. The stock trades at a P/E of 4.3x FY19e and 4.8x FY19e adjusted Dividend yield (%) - -
EV/EBITDAR. We value it at 10x FY19e EPS (7x FY19e EV/EBITDAR) Net debt / equity (x) -2.0 1.7
and retain our price target of `150. We maintain our Buy recommendation. Source: Anand Rathi Research
* appears to be higher due to low net-worth
Quarterly results (YE Mar) Q3 FY16 Q3 FY17 % yoy 9M FY16 9M FY17 % yoy
Sales (` m) 14,599 16,425 12.5 36,064 45,642 26.6
EBITDA (` m) 2,797 1,748 -37.5 3,821 4,787 25.3
EBITDA margin (%) 19.2 10.6 -851bps 10.6 10.5 -11bps
Interest (` m) 233 78 -66.6 700 484 -30.9
Depreciation (` m) 305 524 71.6 902 1,457 61.7
Other income (` m) 125 280 123.5 1,120 658 -41.2
PBT (` m) 2,384 1,427 -40.1 3,340 3,504 4.9 Mayur Milak
Tax (` m) - - NA - - NA Research Analyst

Adjusted PAT (` m) 2,384 1,427 -40.1 3,340 3,504 4.9

Extraordinary items - 385 NA - 385 NA
Source: Company

Anand Rathi Share and Stock Brokers Limited (hereinafter “ARSSBL”) is a full-service brokerage and equities-research firm and the views expressed therein are solely of
ARSSBL and not of the companies which have been covered in the Research Report. This report is intended for the sole use of the Recipient. Disclosures and analyst
certifications are present in the Appendix.

AnandRathi Research India Equities

15 February 2017 SpiceJet – Best bet in the aviation sector; Buy

Quick Glance – Financials and Valuations

Fig 1 – Income statement (` m) Fig 2 – Balance sheet (` m)
Year-end: Mar FY15 FY16 FY17e FY18e FY19e Year-end: Mar FY15 FY16 FY17e FY18e FY19e
Net revenues 52,385 50,813 62,450 74,897 87,894 Share capital 5,995 5,995 5,995 5,995 5,995
Revenue growth (%) -16.9 -3.0 22.9 19.9 17.4 Reserves & surplus -18,640 -12,308 -6,980 -5,028 3,939
- Oper. expenses 58,583 46,570 56,035 66,426 76,906 Net worth -12,646 -6,313 -986 966 9,934
EBIDTA -6,198 4,243 6,415 8,471 10,988 Total debt 14,185 10,185 6,185 3,185 755
EBITDA margins (%) -11.8 8.4 10.3 11.3 12.5 Minority interest - - - - -
- Interest 1,650 1,154 573 328 138 Def. tax liab. (net) - - - - -
- Depreciation 1,266 1,176 1,900 1,800 1,700 Capital employed 1,539 3,871 5,199 4,151 10,688
+ Other income 2,613 1,523 1,000 1,400 1,400 Net fixed assets 17,138 16,022 16,122 16,322 16,622
- Tax - - - - 1,583 Intangible assets - - - - -
Effective tax rate (%) - - - - 15.0 Investments - - - - -
+ Associates / (minorities) - - - - - - of which, Liquid - - - - -
Adjusted PAT -6,501 3,436 4,942 7,743 8,968 Working capital -15,835 -16,928 -15,096 -13,696 -11,249
+ Extraordinary items - 637 385 - - Cash 236 4,777 4,172 1,525 5,315
Reported PAT -6,501 4,073 5,327 7,743 8,968 Capital deployed 1,539 3,871 5,199 4,151 10,688
Adj. FDEPS (` / sh) -10.8 5.7 8.2 12.9 15.0 W C turn (days) (110) (122) (88) (67) (47)
Adj. FDEPS growth (%) -35.2 -152.9 43.8 56.7 15.8 Book value (` / sh) -21.1 -10.5 -1.6 1.6 16.6
Source: Company, Anand Rathi Research Source: Company, Anand Rathi Research

Fig 3 – Cash-flow statement (` m) Fig 4 – Ratio analysis @ `65

Year-end: Mar FY15 FY16 FY17e FY18e FY19e Year-end: Mar FY15 FY16 FY17e FY18e FY19e
Adjusted PAT -6,501 3,436 4,942 7,743 8,968 P/E (x) -13.8 26.2 18.2 11.6 10.0
+ Non-cash items 1,266 1,176 1,900 1,800 1,700 Cash P/E (x) -17.2 19.5 13.1 9.4 8.4
Cash profit -5,235 4,612 6,842 9,543 10,668 EV / EBITDA (x) -16.8 22.5 14.3 10.8 7.8
- Incr. / (decr.) in WC 822 -1,094 1,833 1,400 2,447 EV / sales (x) 2.0 1.9 1.5 1.2 1.0
Operating cash-flow -6,057 5,706 5,010 8,143 8,221 P/B (x) -7.1 -14.2 -91.2 93.1 9.1
- Capex -370 60 2,000 2,000 2,000 RoE (%) * 56.9 -36.2 -135.4 -79,286.7 164.5
Free cash-flow -5,687 5,646 3,010 6,143 6,221 RoCE (%)* -261.7 169.7 121.6 172.6 144.1
- Dividend - - - - - Dividend yield (%) - - - - -
+ Equity raised 4,050 2,259 - -5,791 -0 Dividend payout (%) - - - - -
+ Debt raised 1,822 -4,000 -4,000 -3,000 -2,430 Net debt / equity (x) -1.1 -0.9 -2.0 1.7 -0.5
- Investments - - - - - Debtor days 8 3 3 3 3
- Misc. items - -637 -385 - - Inventory days 3 5 5 5 5
Net cash-flow 185 4,542 -605 -2,648 3,791 Payables days 70 56 40 41 19
+ Op. cash & bank bal. 51 236 4,777 4,172 1,525 D/E ratio -1.1 -1.6 -6.3 3.3 0.1
Cl. Cash & bank bal. 236 4,777 4,172 1,525 5,315 Interest coverage ratio -2.9 4.0 9.6 24.6 65.9
Source: Company, Anand Rathi Research Source: Company, Anand Rathi Research * appears to be higher due to low net-worth

Fig 5 – Price movement Fig 6 – Quarterly revenue trend

(`)
(`m)
100
16,500
90
SJET 16,000
80
70 15,500
60 15,000
50 14,500
40
14,000
30
13,500
20
10 13,000

0 12,500
3QFY16

4QFY16

1QFY17

2QFY17

3QFY17
Feb-16

Feb-17
Feb-14

Feb-15
Feb-12

Feb-13

Oct-16
Oct-14

Oct-15
Oct-12

Oct-13

Jun-16
Jun-14

Jun-15
Jun-12

Jun-13

Source: Bloomberg Source: Company

AnandRathi Research 2
15 February 2017 SpiceJet – Best bet in the aviation sector; Buy

Quarterly result update

Fig 7 – Quarterly performance
(` m) Q3 FY16 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17
Net sales 14,394 14,487 15,063 13,784 16,027
YoY (%) 10.7 85.1 36.5 33.9 11.3
QoQ (%) 39.9 0.6 4.0 (8.5) 16.3
Other operating income 206 263 152 219 398
14,599 14,750 15,215 14,003 16,425
YoY (%) 11.3 87.6 37.5 34.6 12.5
QoQ (%) 40.4 1.0 3.2 (8.0) 17.3
EXPENDITURE
Aircraft fuel 3,667 3,287 3,997 4,300 4,738
% of sales 25.1 22.3 26.3 30.7 28.8
YoY (%) (34.8) 14.8 11.4 27.3 29.2
QoQ (%) 8.5 (10.4) 21.6 7.6 10.2
Aircraft lease rentals 2,277 2,474 2,595 2,064 2,429
% of sales 15.6 16.8 17.1 14.7 14.8
YoY (%) 5.9 114.4 61.4 21.7 6.7
QoQ (%) 34.3 8.6 4.9 (20.5) 17.7
Aircraft Maintenance 1,646 3,956 1,972 2,093 2,114
% of sales 11.3 26.8 13.0 14.9 12.9
YoY (%) 4.5 246.1 35.6 26.9 28.4
QoQ (%) (0.2) 140.4 (50.1) 6.1 1.0
Staff cost 1,280 1,332 1,475 1,530 1,828
% of sales 8.8 9.0 9.7 10.9 11.1
YoY (%) (10.7) 23.9 27.3 32.3 42.7
QoQ (%) 10.7 4.0 10.7 3.7 19.4
Other expenditure / re-delivery expenses 1,422 1,714 1,565 1,093 1,666
% of sales 9.7 11.6 10.3 7.8 10.1
YoY (%) (52.1) 24.8 54.2 (2.7) 17.1
QoQ (%) 26.6 20.5 (8.7) (30.2) 52.4
Other operating expensess 560 478 568 595 687
% of sales 3.8 3.2 3.7 4.2 4.2
YoY (%) 17.4 62.7 38.2 12.1 22.7
QoQ (%) 5.5 (14.7) 18.8 4.8 15.5
Airport charges 951 1,089 1,120 1,213 1,215
% of sales 6.5 7.4 7.4 8.7 7.4
YoY (%) 0.9 58.2 35.4 43.9 27.8
QoQ (%) 12.7 14.6 2.8 8.3 0.2
Total expenses 11,803 14,329 13,291 12,888 14,676
EBITDA 2,797 420 1,923 1,116 1,748
YoY (%) (235.5) (157.9) 92.4 4458.6 (37.5)
QoQ (%) 11329.2 (85.0) 357.4 (42.0) 56.7
OPM (%) 19.2 2.9 12.6 8.0 10.6
EBITDAR 5,074 2,894 4,518 3,179 4,177
YoY (%) 5680.3 576.4 73.3 84.9 (17.7)
QoQ (%) 195.1 (43.0) 56.1 (29.6) 31.4
EBITDAR Margin (%) 34.8 19.6 29.7 22.7 25.4
Other income 125 403 224 154 280
Interest 233 454 209 197 78
Depreciation 305 274 449 485 524
Exceptional items 637 385
Profit before tax 2,384 732 1,490 588 1,812
Provision for taxation - - - - -
PAT 2,384 732 1,490 588 1,812
YoY (%) (186.7) 225.0 107.4 147.2 (24.0)
QoQ (%) 902.8 (69.3) 103.6 (60.6) 208.4
Adj. EPS 4.0 0.2 2.5 1.0 2.4
Source: Company

AnandRathi Research 3
15 February 2017 SpiceJet – Best bet in the aviation sector; Buy

Result Highlights and Analysis

 The Q3 FY17 available seat-km (ASKM) jumped 27% yoy, 4% qoq.
With the average load factor at ~91% during the quarter, yoy growth
was significant. Revenue came in line with our expectation of `16.4bn.
 The gross average yield came in at `4,112, compared to `4,108 the
previous quarter and `4,375 the quarter before that.
 PAT includes a write-back of a previous provision of `385m, included
in exceptional items.
 Overall, the company reported a decent set of operating earnings and
we expect the favourable growth trajectory to continue.

AnandRathi Research 4
15 February 2017 SpiceJet – Best bet in the aviation sector; Buy

The warrants issue

The case so far . . .
In Sep’14 (when the Marans were owners), the Board approved 189m
warrants (for `3.1bn) to the outgoing promoters (the Marans), with the
option to apply for and be allotted an equal number of equity shares of FV
`10, at a premium of `6.30. The outgoing promoters then paid `2.3bn
against the warrants due. This was recorded in the FY15 annual report as
Advance Money Received Against Securities Account.
In Mar’16 the Marans filed a case in the High Court for the issue of these
warrants to them. They claimed that they were to be issued warrants in
SpiceJet under a Jan’15 sale-purchase agreement which led to the change
in ownership. The court passed an order asking the Bombay Stock
Exchange to decide on the application for issuance of the warrants.
On 7th Apr’16, the Delhi High Court again asked the BSE and the
Securities and Exchange Board of India about their decision with regard to
the application of SpiceJet and Maran for the issuance of warrants in the
airline to him.
On 11th May’16, the BSE told the Court that it could not allow the issue of
warrants to the Marans. It said the resolution was an old one and that
current legal provisions do not permit the issue of warrants in such cases.
It also said there was need to accommodate a change in the pricing of
shares to allow for their issuance. The High Court then directed SEBI to
come up with a resolution for the issuance of the warrants.
On 18th May’16, SEBI too rejected the possibility of finding in favour of
the Marans, citing Section 9 (2) (m) of The Securities Contract Regulation
Act, 1956. The Marans have now demanded a greater refund (keeping in
mind the movement in the stock price from `16 to `80), and may go in for
arbitration. The Court directed this case to arbitration settlement.
Our take
We believe there can be two scenarios/outcomes in settlement of this
warrant issue.
Case 1: Warrants issued in line with SEBI guidelines
The present SEBI guidelines say that shares can be issued at a price not
less than the higher of:
1. The average of the weekly high and low closing prices of the shares
quoted on the stock exchange during the six months preceding the
relevant date; OR
2. The average of the weekly high and low closing prices of the shares
quoted on a stock exchange during the two weeks preceding the
relevant date.
According to this guideline, the derived price could be ~`60. At this price,
it is more likely that the Marans may not exercise their option to obtain
equity shares.
Case2: No warrants issued; arbitrary settlement
The erstwhile promoters deposited ~`2.3bn with SpiceJet against the issue
of the proposed warrants. This is much more than the mandated 25% of
the total consideration.

AnandRathi Research 5
15 February 2017 SpiceJet – Best bet in the aviation sector; Buy

The company may decide to treat the entire proceeds as debt and repay it,
along with interest, over a decided period of time.
We believe that case two is the more likely option for this settlement and
hence have not factored any dilution in our estimates.

AnandRathi Research 6
15 February 2017 SpiceJet – Best bet in the aviation sector; Buy

Valuation
Change in estimates
Higher traffic growth and rising prices of crude lead us to revise our
estimates. While we raise our FY17 and FY18 revenues 2% and 3%
respectively, we cut our earnings 25% and 12%, broadly because higher
fuel expenses and lower other income.

Fig 8 – Change in estimates

Change (%) New Old
(`m) FY17e FY18e FY17e FY18e FY17e FY18e
Revenue 2.0 3.4 62,450 74,897 61,197 72,406
EBITDA -11.9 -13.4 6,415 8,471 7,283 9,780
PAT -24.7 -12.2 4,942 7,743 6,565 8,816
Source: Anand Rathi Research

Valuation
The stock trades at a P/E of 4.3x FY19e and 4.8x FY19e adj. EV/
EBITDAR. We value it at 10x FY19e EPS (7x FY19e EV/EBITDAR)
and retain our price target of `150. We maintain our Buy recommendation.
Risk
 Higher prices of crude oil
 Lower load factors
 Delay in aircraft addition.

AnandRathi Research 7
Appendix
Analyst Certification
The views expressed in this Research Report accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research
analyst(s) in this report. The research analysts are bound by stringent internal regulations and also legal and statutory requirements of the Securities and Exchange
Board of India (hereinafter “SEBI”) and the analysts’ compensation are completely delinked from all the other companies and/or entities of Anand Rathi, and have
no bearing whatsoever on any recommendation that they have given in the Research Report.

Important Disclosures on subject companies

Rating and Target Price History (as of 14 February 2017)
TP Share
100 Spicejet
1 Date Rating (`) Price (`)
90 1 12-Jan-16 Buy 150 82
80
70
60
50
40
30
20
10
0
Jan-15

Sep-15
Mar-15

Jul-15

Mar-16

Jul-16

Sep-16

Jan-17
May-15

Nov-15

Jan-16

May-16

Nov-16

Anand Rathi Ratings Definitions

Analysts’ ratings and the corresponding expected returns take into account our definitions of Large Caps (>US$1bn) and Mid/Small Caps (<US$1bn) as described
in the Ratings Table below:
Ratings Guide (12 months)
Buy Hold Sell
Large Caps (>US$1bn) >15% 5-15% <5%
Mid/Small Caps (<US$1bn) >25% 5-25% <5%

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4. However, one or more of ARSSBL or its Affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those
securities or options thereon, either on their own account or on behalf of their clients.
5. As of the publication of this report, ARSSBL does not make a market in the subject securities.
6. ARSSBL or its Affiliates may or may not, to the extent permitted by law, act upon or use the above material or the conclusions stated above, or the research or analysis on
which they are based before the material is published to recipients and from time to time, provide investment banking, investment management or other services for or solicit
to seek to obtain investment banking, or other securities business from, any entity referred to in this report.
Enclave Capital LLC is distributing this document in the United States of America. ARSSBL accepts responsibility for its contents. Any US customer wishing to effect
transactions in any securities referred to herein or options thereon should do so only by contacting a representative of Enclave Capital LLC.
© 2016. This report is strictly confidential and is being furnished to you solely for your information. All material presented in this report, unless specifically indicated otherwise,
is under copyright to ARSSBL. None of the material, its content, or any copy of such material or content, may be altered in any way, transmitted, copied or reproduced (in
whole or in part) or redistributed in any form to any other party, without the prior express written permission of ARSSBL. All trademarks, service marks and logos used in this
report are trademarks or service marks or registered trademarks or service marks of ARSSBL or its affiliates, unless specifically mentioned otherwise.
Additional information on recommended securities/instruments is available on request.
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