Is SpiceJet that hot?

Summary

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• Low Cost carrier
• Unique Branding Techniques and Adapting to new technologies
• The King of Cargo Transportation

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Detailed Analysis of SpiceJet

What is Special about SpiceJet?

SpiceJet is India`s largest cargo operator in terms of domestic and international cargo operations. In terms of regional connectivity, SpiceJet is India`s largest passenger airline. Every customer wants to buy more products or services at cheaper prices and enjoy the most with it. SpiceJet is one of India`s leading and the most favourite low-cost airlines.

 

Breakdown of their Revenue Stream:

They get their Primary revenue from Passenger air travel. Their other source of income includes Preferred Seating, Business Class, Spice Max, Loyalty Programmes, Insurance, Meals, Spice Vacations, Lounge, Visa, Cab, Cargo, Onboard Merchandise.

 

What has Covid done to this industry?

Aviation Industry is one of the most affected because of huge fall in demand. It was clearly mentioned as per IATA report that air services will be back to pre-covid levels by the year 2023. It also stated that Airline financial performance is expected to recover first in Asia Pacific followed by airlines in the developed market regions which is good for SpiceJet shareholders also for a simple reason, second-best low-cost carrier. Just like IndiGo, Because of low-cost structure, SpiceJet will also attract customers post lockdown and there will be huge demand for this airline. To explain it in layman language, lets imagine two movies of big stars are releasing on a same date. When one show gets filled, people get an option of choosing another one and this is why people release multiple movies during festive seasons. Same strategy can pull SpiceJet if we compare the scenario in Aviation industry. If it is difficult to get the best deal, we usually go for the second best and SpiceJet is the one in the list.

 

Insights and minute details about the Company by the CEO of SpiceJet:

SpiceJet also made a codeshare agreement with Emirates and MoU with Gulf Air to explore interline and codeshare agreement. At the time of pandemic, 76,500 tonnes of cargo transported through more than 9,930 flights – surgical supplies, sanitisers, face masks, coronavirus rapid test kits, IR thermometers, along with providing doorstep deliveries of essential supplies and medical equipment. They also ran special flights to support Government’s Krishi Udan and Marine Udan initiatives aimed at helping farmers by transporting record quantities of fresh farm (vegetables and fruits) and shrimp produce. Under Vande Bharat Mission, SpiceJet supported the Government’s initiatives by operating more than 1,100 flights to repatriate 2,00,000 Indians stranded in across various countries. Looking at their debts, they are slowly decreasing their debts and I strongly believe that the company can become a debt free company in a couple of years. 

The fact to be noticed is for Domestic Demand, CAGR is 13.6% in terms of revenue passenger kilometres from FY 2009 to FY 2019. India is now the third largest domestic aviation market in the world. We all know the fact that Air passenger traffic in India has been growing very strong since the beginning of 2000s, after rise in incomes, standards and affordable fares. As we all know airlines aren’t just used for passengers but it is also used for cargo and Cargo has seen a huge demand due to surge in imports and exports. Aviation was the only key to transport Covid vaccines, medical equipment and so on.

 

What is the new cool in SpiceJet?

Apart from making aviation affordable, SpiceJet is also strongly focussed on making it environmentally sustainable. In a first of its kind initiative, they launched Electric Tarmac coaches at Chennai Airport which is a new sustainability benchmark in Indian aviation that will considerably reduce carbon footprint. Their branding was kind of different and unique this time. They launched SpiceDemocracy, wherein free flight tickets were offered to voters who wished to cast their votes in the Delhi Assembly elections. Over 7,000 citizens participated in the campaign and helped build a stronger and more vibrant democracy. They converted an aircraft into a flying billboard with a movie poster giving a unique and unmatched visibility to the music launch of the Tamil film ‘Soorarai Pottru’ inside an aircraft at Chennai International Airport. SpiceJet also teamed up with the Sports Authority of India and ran special flights to provide an exclusive flying experience to over 1,000 athletes at the third edition of the 2020 Khelo India Youth Games held in Guwahati.

While the short-term demand for Indian aviation industry looks challenging, the medium to long term outlook remains strong due to rise in working population, expansion of the middle class, and rapid proliferation of online channels. Further, the rise in trade and tourism is also likely to boost the industry. As per Airports Authority of India (AAI), India is projected to have 480 million flyers by 2036, which will be more than that of Japan (just under 225 million) and Germany (just over 200 million) combined. Further, cargo has also been seeing increasing demand over the last few years. Growth in trade will be the key driver for growth in freight traffic as 30% of total trade is undertaken via airways. In this context, aviation is considered the fastest and most reliable mode to deliver humanitarian aid during extreme conditions. Various Indian airlines have been instrumental in helping the country in times of Covid-19 outbreak by transporting essential supplies. As per AAI, by 2023, total freight traffic is expected to touch 4.1 million tonnes, exhibiting a CAGR of 7.3% between FY 2015-16 and FY 2022-23. Source: AGM Report

Awards and Achievements:

1. 1. Asia Pacific Airline Executive of the Year Award 2019 by CAPA - Centre for Aviation to Mr. Ajay Singh, CMD
2. 2. Best Domestic Low-Cost Airline Award 2019 at the 12th ASSOCHAM International Conference cum Awards on Civil Aviation & Cargo
3. 3. Best Domestic Airline Award 2018 at the 11th ASSOCHAM International Conference cum Awards on Civil Aviation & Cargo
4. 4. Low-Cost Leadership Award by Flight Airline Business in London to Mr. Ajay Singh, CMD
5. USISPF Leadership Award in Washington DC to Mr. Ajay Singh, CMD
6. Editor’s Choice Award for best domestic low-cost airline at the Times Travel award
7. BML Munjal Awards 2018 for ‘Business Excellence through Learning and Development’
8. Special Jury Award for Outstanding Entrepreneur of the civil aviation sector for the decade by Air Passengers Association of India to Mr. Ajay Singh, CMD
9. Best Airline operating under the government’s Regional Connectivity Scheme (UDAN) by APAI.
10. Best Domestic Airline Award at the prestigious Wings India Awards for Excellence in the aviation sector organised by the Ministry of Civil Aviation, Government of India and FICCI
11. Indian Entrepreneur of the Year 2017 to Mr. Ajay Singh, CMD for Business Transformation by Ernst & Young (EY)
12. CAPA Chairman’s Order of Merit for Excellence in Indian Aviation Award to Mr. Ajay Singh, CMD Ensuring an Award-Winning Performance Annual Report

Operational and Financial Performance:

1. 40% Growth in capacity [seat kms] to 31.3 billion in FY 2019-20.
2. 93 new routes introduced in FY 2019-20.
3. 39 new aircraft added to the fleet.
4. 36% Growth in total income from operations.
5. 6% Growth in average fare.
6. 32% Growth in passenger revenue.

SWOT Analysis of SpiceJet:

Strength:

1. Second most favorite low cost carrier
2. Unique branding and advertisement techniques
3. FII has increased their shareholding

Weakness:

1. No International Presence
2. High promoter pledge
3. Degrowth in revenue and profits
4. MFs decreased their shareholding

Opportunities:

1. International Expansion
2. Increasing market share in aviation industry

Threats:

1. IndiGo`s strong presence globally and also in domestic circuit
2. Fluctuations in fuel prices
3. Changing Government policies

 

Financials:

 

Market Capital	4170 Cr.
Earnings Per Share [EPS]	-26.44
Price-Earnings Ratio [PE]	-
Industry PE	-
Book Value Per Share	39.36
Price to Book Value	-1.76
Dividend Yield	0.00
No. of Shares Subscribed	60.09 Cr.
Face Value	10

 

Balance Sheet:

 

PARTICULARS	MARCH 2020 [Rs in Crores]	MARCH 2019 [Rs in Crores]	MARCH 2018 [Rs in Crores]
Share Capital	600.08	599.72	599.45
Reserves and Surplus	-2,193.59	-955.92	-656.67
Shareholders Funds	-1,580.40	-349.96	-55.92
Non Current Liabilities	7,900.76	1,523.20	977.66
Current Liabilities	6,635.16	3,619.55	3,097.52
Total Capital and Liabilities	12,955.52	4,792.79	4,019.25
Non Current Assets	10,741.76	3,423.23	3,078.58
Current Assets	2,213.77	1,369.56	940.68
Total Assets	12,955.52	4,792.79	4,019.25

 

Profit and Loss Statement:

 

PARTICULARS	MARCH 2020 [Rs in Crores]	MARCH 2019 [Rs in Crores]	MARCH 2018 [Rs in Crores]
Total Sales	12,374.57	9,121.48	7,760.13
Total Income	13,205.22	9,266.26	7,889.37
Total Expenses	11,860.88	9,117.52	7,008.52
Operating Profit	513.69	3.96	751.61
Adjusted EPS	-1.56	-0.50	0.93

 

Cash Flow Statement:

 

PARTICULARS	MARCH 2020 [Rs in Crores]	MARCH 2019 [Rs in Crores]	MARCH 2018 [Rs in Crores]
Cash from Operating	1,847.70	455.50	1,035.50
Cash from Investing	-183.90	-144.20	-825.10
Cash from Financing	-1,705.20	-363.80	-110.10
Net Cash Flow	-41.30	-52.40	100.30

 

Is it worth buying SpiceJet?

In my opinion, I would say that SpiceJet will be probably the best alternative for IndiGo. The Company is vigorously involved in branding and digital marketing . Management is very clear about their future and especially their weaknesses also. It is very important to realize and rectify the mistakes, be it in life or in a company. This company has got huge potential provided they come up with better strategies. Decline in debts is something good for a company and its investors. One can avoid huge investments in SpiceJet but can put their party funds and definitely make money.

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Exclusivity:

This article is exclusive to investoguru.

Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.