IGI Logo

Recapitalisation remains key; ‘logistics platform’ targeted for monetization

SpiceJet (SJet) continues to maintain momentum in the cargo business with Q1FY22 net profit of Rs300mn for the ‘logistics platform’ (this semantic is being used by the company for the first time). Recapitalisation remains the key trigger for the business. As per a press release by the company, it is in the process of hiving off the logistics platform, SpiceXpress, which is aimed to unlock significant value for SJet and its shareholders. This will also allow SpiceXpress to raise capital to fuel its rapid growth. The expected compensation from Boeing continues to be added every quarter at a run-rate of Rs1.4bn; however, with more delay, the chances of realisation of the cumulative amount (approximately Rs14bn till date and it changes with forex fluctuation) becomes doubtful. Maintain HOLD with a revised target price of Rs71 (earlier: Rs85) based on 15x FY23E earnings of Rs6.3 adjusted for 25% tax rate since it does not pay any tax, which translates to a multiple of 11.25x).

Expectations of a new airline coming up in India (Link), continued impact of covid in international sectors (Link), and rising fuel prices (average domestic aviation prices are up ~49% in CY21) remain overhangs in the near term. SJet had a negative net worth of Rs33bn as at Q1FY22 (Rs26bn in Mar’21). If compensation from Boeing is unrealised, this will be lower.

* SpiceXpress (SpiceJet’s logistics platform) reported a net profit of Rs300mn and revenues of Rs4.7bn in Q1FY22. SJet’s cargo revenues were Rs11.175bn in FY21 and Rs4.17bn in Q4FY21. Cargo net profit was Rs1.3bn for FY21 against loss of Rs1.34bn in FY20. Company was operating a fleet of 20 cargo planes including 8 wide-bodied as per FY21 disclosure (no further update). Two consecutive quarters with more than Rs4bn revenues is a noteworthy achievement.

* Lease rentals in operating cost for Q4FY21/Q1FY22 have averaged Rs1.45bn vs average of Rs450mn in Q1/Q2/Q3FY21. The jump could be due to wet lease arrangements.

* There was overall reduction in liabilities in FY21 over FY20, which was was surprising (refer Table 5 below). During Q1FY22, SJet was able to raise Rs1.27bn from banks under Emergency Credit Line Guarantee Scheme (ECLGS).

* Expected compensation from Boeing: SJet has factored-in Rs6.7bn/Rs5.6bn as expected compensation from Boeing related to Max groundings in FY20/FY21 in other income. The auditors have qualified their audit report in this regard. Q1FY22 amount was also Rs1.4bn. Further, SJet has recognised the related foreign exchange gain on restatement of these balances of Rs195mn for Q1FY22.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer