IGI Logo

Recapitalisation remains key; logistics platform has monetisation potential

SpiceJet (SJet) continues to maintain revenue momentum in its cargo business with H1FY22 net cargo revenues of about Rs10bn. Recapitalisation remains the key trigger for the business. SJet is in the process of hiving off its logistics platform, SpiceXpress to unlock value for SJet. 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 but, with more delay, realisation of the cumulative amount (~ Rs15bn till date) becomes doubtful in our view. Expectation of a new airline coming up in India (Link), continued impact of covid in international sectors, and rising fuel prices (average crude prices in Q4FY21/Q1FY22/Q2FY22 were US$58.5/69.1/73.2), remain near term overhang. SJet had a negative net worth of Rs39bn as at Q2FY22 (Rs26bn as at Mar’21) which could be lower if compensation from Boeing is unrealised.

* SJet is aiming for recapitalisation: Shareholders have approved transfer of cargo/logistics services business to SpiceXpress and Logistics Private Limited as a going concern, on slump sale basis valued at Rs25.6bn. The transfer of the logistics business, once consummated, will result in a one-time gain for SJet and improve its negative net worth of Rs39bn as at H1FY22. Shareholders have also approved fund raise of up to Rs25bn through QIP.

* SpiceXpress – the logistics platform reported loss in Q2FY22, but has established annual business capability of more than Rs20bn now. While its Q1FY22 net profit was Rs300mn with revenues of Rs4.7bn, SpiceXpress reported loss of Rs661mn in Q2FY22 with revenues of Rs4.98bn. SJet’s cargo revenues were Rs11.175bn in FY21 and Rs4.17bn in Q4FY21. As such, the ability of the business to do Rs20bn annual revenues in freighter cargo is well established (three consecutive quarters with >Rs4bn in revenues). The loss in Q2FY22 was attributed to inability to pass on the higher crude prices due to committed long-term contracts.

* Will SpiceXpress be able to increase cargo rates further? SpiceXpress carried more than 45,000te of cargo in Q2FY22. Considering revenues of ~Rs4.98bn, the blended yield works out to Rs111/kg, which is more than double that of BlueDart. While this would be driven by higher international share, the ability to hike rates further will be tested with high crude prices. SpiceXpress was operating a fleet of 20 cargo planes including eight wide-bodied aircraft as per FY21 annual report. This has now reduced to an operating fleet of 17 cargo aircraft (seven wide-bodies). SpiceXpress’s network spans over 69/107 domestic/ international destinations including US, Europe and Africa.

* Maintain HOLD with a revised target price of Rs76 (earlier: Rs71) based on 15x FY23E EPS of Rs6.8 adjusted for 25% tax rate since the company does not pay any tax, which translates to a multiple of 11.25x.

To Read Complete Report & Disclaimer Click Here

or 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