3QFY2011 Result Update | Airlines

January 27, 2011

SpiceJet
Performance Highlights
Particulars (` cr) Net sales EBITDA EBITDA margin (%) Net profit 3QFY2011 830.1 114.0 13.7 94.4 3QFY2010 642.1 102.3 15.9 108.9 %chg (yoy) 29.3 11.5 (220)bp (13.3) 2QFY2011 628.2 3.6 0.6 10.1 %chg (qoq) 32.2 3,096.1 1,317bp 833.8

NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Airlines 2,785 0.9 97/50 3,419,462 10 18,684 5,604 SPJT.BO SJET@IN

`69 -

Source: Company, Angel Research

SpiceJet reported strong 3QFY2011 numbers. Net sales grew by 29.3% yoy to `830cr (`642cr). EBITDA margin came in at 13.7% (15.9%) and EBIDTA stood at `114.0cr (`102cr), up by 11.5%, largely on account of increased passenger traffic, which lead to higher top line. Consequently, the company reported net profit growth of 833.8% qoq of `94cr; net profit, however, fell by 13.3% yoy. We remain Neutral on the stock. Strong top-line growth, while margins decline: SpiceJet reported growth of 29.3% yoy and 32.2 qoq to `830cr mainly because 1) 3Q is a peak season for the airline industry and 2) lower capacity addition in the industry lead to lesser competition compared to the previous year. EBITDAR margin declined to 446bp yoy to 26.5% (31%) and EBITDA also declined by 220bp yoy to 13.7% (15.9%), owing to higher fuel cost during the quarter. The company registered a 13.3% yoy decline in its net profit to `94cr compared to profit of `109cr in 3QFY2010, largely due to lower EBITDA margin and tax paid during the quarter. Outlook and valuation: SpiceJet is well placed to service future demand with a current fleet of 25 aircraft and existing expansion plan of three more aircraft by FY2012-end. SpiceJet has also ordered 30 new planes from Bombardier Inc. of Canada, of which we conservatively expect it to add four planes in FY2012; and of the balance, one aircraft would be added every quarter going ahead. We expect net sales to post a 26% CAGR to `3,463cr and net profit to post a 123% CAGR over FY201012 to `306cr. At current levels, the stock is trading at 9.1x FY2012E earnings. We remain Neutral on the stock.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 8.1 57.4 21.3 13.2

Abs. (%) Sensex SpiceJet

3m

1yr

3yr 2.9 (5.2)

(6.6) 14.7 (20.1) 28.3

Key financials
Y/E March (` cr) Net sales % chg Net profit % chg FDEPS (`) EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDAR (x)
Source: Company, Angel Research

FY2009 1,689 30.5 (353) 164.1 (14.6) (2,481.0) (4.7) (3.9) 1.1 -

FY2010 2,181 29.1 61 (117.4) 1.5 119.9 27.1 23.8 (4.9) 0.8 4.0

FY2011E 2,775 27.2 208 238.8 5.1 697.1 13.3 68.8 6.3 0.8 3.5

FY2012E 3,463 24.8 306 46.9 7.6 842.5 9.1 51.4 47.5 3.7 0.5 2.3

Sharan Lillaney
022 3935 7800 Ext: 6811 sharanb.lillaney@angelbroking.com

Please refer to important disclosures at the end of this report

SpiceJet | 3QFY2011 Result Update

Exhibit 1: 2QFY2011 performance

Particulars (` cr) Net Sales Total Expenditure EBITDA EBITDA Margin (%) EBITDAR EBITDAR Margin (%) Depreciation EBIT Interest Other Income* PBT Tax Net Profit NPM (%) Diluted EPS (`) 3QFY2011 830.1 716.1 114.0 13.7 220.0 26.5 2.3 111.7 1.0 7.2 118.0 23.5 94.4 11.4 2.3 3QFY2010 642.1 539.8 102.3 15.9 198.8 31.0 1.9 100.4 1.7 10.3 108.9 108.9 17.0 2.7 %chg (yoy) 29.3 32.7 11.5 (220)bp 10.7 (446)bp 18.3 11.3 (42.9) (30.1) 8.3 (13.3) (559)bp (13.3) 2QFY2011 628.2 624.6 3.6 0.6 107.8 17.2 2.2 1.4 1.4 12.6 12.6 2.5 10.1 1.6 0.3 %chg (qoq) 32.2 14.6 3,096.1 1,317bp 104.0 934bp 5.0 7,972.4 (29.4) (43.1) 833.8 833.8 833.8 977bp 833.8 9HFY2011 2,166.2 1,990.0 176.1 8.1 482.4 22.3 6.5 169.7 3.7 33.6 199.6 39.8 159.8 7.4 6.6 9HFY2010 1,615.9 1,604.4 11.5 0.7 306.4 19.0 5.8 5.8 5.0 33.2 34.0 34.0 2.1 0.8 %chg (yoy) 34.0 24.0 1,424.9 742bp 57.4 331bp 12.2 2,836.2 (26.2) 1.1 486.9 370.0 527bp 685.8

Source: Company, Angel Research, * Other income prior period adjustment

Exhibit 2: Operating parameters

3QFY2011 3QFY2010 %chg (yoy) 2QFY2011 %chg (qoq) ASKM (mn) Block hours Departures Pax carried Average no. of aircraft Average seat revenue Load factor (%) Revenue/ASKM
Source: Company, Angel Research

2,731 24,744 14,184 22.4 3,478 87.8 3.0

2,291 21,837 11,680 19.0 3,614 80.0 2.8

19.2 13.3 21.4 17.9 (3.8) 9.7 7.4

2,474 23,511 12,638 21.7 3,477 73.6 2.5

10.4 5.2 12.2 32.2 3.2 0.0 19.3 19.7

2,387,000 1,796,000

32.9 1,806,000

Strong top-line growth: The companys net sales grew by 29.3% yoy to `830cr (`642cr) for the quarter, driven by strong passenger growth, which increased by 32.9% yoy to 2.39mn pax (1.80mn pax). On a qoq basis, net sales increased by 32.2%, which was expected as the third quarter is usually the strongest for the airline industry. During the quarter, departures increased by 21.4% yoy to 14,184 (11,680), largely due to the addition of five new aircraft during the year. Average number of aircraft increased from 19 to 22.4 during the quarter.

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Exhibit 3: Sales trend

(` cr) 900 800 700 600 500 400 300 200 100 3QFY2010 4QFY2010 1QFY2011 2QFY2011 3QFY2011 Growth yoy Net Sales (LHS)
Source: Company, Angel Research

(%) 50 830 708 642 560 628 40 30 20 10 0 (10) (20) Growth qoq

EBITDA margin declines yoy on higher fuel cost: SpiceJets EBITDA margin declined by 220bp yoy to 13.7% (15.9%) for the quarter, mainly on account of higher ATF prices during the quarter, which increased by 516bp yoy to 37.5%, as a percentage of sales, compared to 32.4% in 3QFY2010. However, EBITDA grew by 11.5% to `114cr due to an increase in the top line. On a qoq basis, margins witnessed an increase of 1,317bp due to higher load factor during the quarter of 87.8% (73.6% in 2QFY2011) on account of the peak season. Overall, owing to better operations and high load factors, the company managed to increase its revenue/ASKM yoy to `3.0 (`2.8).

Exhibit 4: OPM trend

18 16 14 12
(%)

15.9 13.7

10 8 6 4 2 0 3QFY2010 4QFY2010 1QFY2011 1.9 0.6 2QFY2011 3QFY2011 8.3

Source: Company, Angel Research

Bottom line declines due to tax paid, but PBT increases yoy: In 3QFY2010, SpiceJet reported net profit of `94cr v/s a profit of `109cr in 3QFY2010, largely because the company paid tax of `24cr in 3QFY2011 compared to zero tax paid in 3QFY2010. However, at the PBT level, the company reported an increase of 8.3% yoy to `118cr (`109cr), despite a dip in EBITDA margin, thus showing strong operational efficiency. Also, on a qoq basis, net profit margin improved by 977bp to 11.4% (1.6%), as the third quarter is usually the strongest quarter for the airline industry.
January 27, 2011

SpiceJet | 3QFY2011 Result Update

Exhibit 5: Strong turnaround in NPM

(` cr) 120 100 80 60 40 20 3QFY2010 4QFY2010 1QFY2011 2QFY2011 NPM (RHS) 3QFY2011 Net Profit (LHS)
Source: Company, Angel Research

(%) 18 109 94.4 16 14 12 10 55 27 10.1 8 6 4 2 0

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Investment rationale
Load factor to remain healthy: Driven by huge losses, most airlines reduced fleets and no new capacities have been added since FY2009. With full cost carriers (FCCs) such as Air India and Kingfisher still registering huge losses, and Jet Airways barely breaking even, we expect negligible fleet addition over FY201112. However, demand bounced back sharply in FY2010 and low-cost carriers (LCCs) have been reporting 80%+ load factor. Going ahead, given that demand is expected to outpace supply, the industrys load factor is expected to remain around 77% for FY2011E. Higher load factor to increase profitability: With the aviation industry characterised by very high operating leverage, an improvement in load factor is expected to drive a substantial spurt in profit. With 88% load factor in 3QFY2011 (74% in 2QFY2011), SpiceJet's net profit shot up to `94cr v/s `10cr in 2QFY2011. Additionally, aided by a strong fleet addition (25% CAGR over FY201012E), we expect the companys net profit to post a 123% CAGR over the period to `306cr. Increasing fleet and strengthening balance sheet: SpiceJet currently has 25 aircraft and is one of the few airlines that will expand its fleet size in the coming years. The company is expected to add another three aircraft by FY2012. Over and above the old delivery schedule, the company has ordered 30 new planes from Bombardier Inc. of Canada. We conservatively expect the company to add four planes in FY2012; and of the balance, one aircraft would be added every quarter going ahead. The company has also placed order for another 30 aircraft from Boeing, which will be delivered 2014 onwards. SpiceJet is expected to build strong cash reserve `537cr as of FY2011E and `878cr by FY2012E. In a worst-case scenario, even if the company witnesses a load factor of just 50% (lowest load factor till date is of 67% reported in FY2009), it would have enough cash to sustain its operational expenditure for seven months without diluting any equity. Moreover, with FCCBs of US $79.8mn fully converted, the companys balance sheet strength has beefed up and net worth would stand at `748cr in FY2012E.

Exhibit 6: Key assumptions

Estimates (%) Sales growth Load factor EBITDAR margin EBITDA margin Net profit margin
Source: Company, Angel Research

FY2011 27.2 80.0 22.9 7.0 7.5

FY2012 24.8 80.0 24.3 8.4 8.8

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Profit & loss statement

Y/E March (` cr) Net Sales % chg Total Expenditure Fuel & Oil Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Share in profit of Associates Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E 749 140.5 920 399 187 97 89 (170) 226.8 (22.7) 6 (176) 192.3 (23.5) 4 108 (148) (73) 98.5 3 (76) 1 (1.3) (77) (77) (77) 119.8 (10.3) (3.2) (3.2) 68.3 1,295 72.8 1,547 703 345 143 103 (252) 47.9 (19.5) 8 (260) 47.5 (20.1) 14 144 (110) (130) 79.0 1 (131) 2 (1.8) (134) (134) (134) 73.4 (10.3) (5.5) (5.5) 73.4 1,689 30.5 2,109 945 476 155 173 (419) 66.3 (24.8) 7 (426) 64.1 (25.2) 16 124 (39) (318) 145.0 31 (349) 3 (1.0) (353) (353) (353) 164.1 (20.9) (14.6) (14.6) 163.7 2,181 29.1 2,155 814 512 182 257 26 1.2 8 18 0.8 6 61 83 73 6 68 6 9.4 61 61 61 2.8 2.5 1.5 2,775 27.2 2,582 1,067 586 211 277 193 640.1 7.0 8 185 901.2 6.7 4 78 30 259 252.4 259 50 19.5 208 208 208 238.8 7.5 5.1 5.1 238.8 3,463 24.8 3,171 1,331 698 264 328 292 50.8 8.4 9 283 52.9 8.2 97 26 380 46.9 380 74 19.5 306 306 306 46.9 8.8 7.6 7.6 46.9

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Balance sheet
Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Reserves& Surplus Shareholders Funds Total Loans Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets Cash Loans & Advances Inventories Debtors Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 62.1 13.7 48.4 694.4 81.2 479.9 351.1 115.4 7.9 5.6 687.1 (207.2) 616.7 86.5 21.4 65.1 498.9 0.4 796.9 608.1 176.2 11.1 1.6 793.2 3.8 568.1 95.8 28.2 67.6 185.3 497.9 308.0 154.3 12.5 12.4 10.8 691.4 (193.5) 59.4 263.1 35.9 227.2 164.7 597.1 450.7 112.8 14.7 19.0 892.9 (295.8) 96.1 292.0 44.3 247.7 82.3 833.7 536.9 253.5 22.8 20.5 721.7 112.0 442.1 324.1 53.2 271.0 6.8 1,248.1 877.8 316.2 28.5 25.6 778.0 470.1 747.8 240.7 184.6 432.2 616.7 240.7 28.0 540.1 568.1 241.0 (670.5) (429.5) 488.8 59.4 241.9 (584.1) (342.2) 438.3 96.1 404.5 37.6 442.1 442.1 404.5 343.3 747.8 747.8 (56.1) (212.7) FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Cash flow statement

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital ADD: Other income Direct taxes paid Cash Flow from Operations Inc./ (Dec.) in Fixed Assets Inc./ (Dec.) in Investments Inc./ (Dec.) in loans and adv. Other income/Expense Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E (183.8) (274.7) (473.3) 5.8 488.0 107.8 1.0 416.9 (334.7) (81.2) (33.7) 68.7 (380.9) 240.4 21.7 262.1 298.1 52.9 351.1 7.8 143.6 2.4 171.1 80.9 (60.8) 6.7 197.9 108.0 108.0 351.1 608.1 7.3 124.1 3.3 304.3 0.4 21.9 (57.8) 268.8 6.6 (51.3) (44.7) 608.1 308.0 76.9 (179.0) 6.8 7.7 224.1 61.0 6.4 293.2 (167.3) 41.5 (24.8) (150.6) 0.1 0.1 142.7 308.0 450.7 180.9 8.4 16.4 77.6 50.4 233.0 (28.9) (140.7) 50.5 (119.1) 54.6 (82.2) (27.7) 86.2 450.7 536.9 282.9 8.9 121.2 96.9 74.1 435.7 (32.1) (62.8) (94.9) 340.9 536.9 877.8

(48.8) (524.3)

257.0 (300.1)

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Key ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/E (on basic, reported EPS) P/CEPS P/BV Dividend yield (%) Market cap. / Sales EV/Sales EV/EBITDA EV / Total Assets EV/EBITDAR Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Asset Turnover (Net Block) Asset Turnover (Total Assets) Operating Inc. / Invested Cap. Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Gross debt to equity Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 2.3 80.7 0.0 (41.3) 19.3 (2.4) 0.3 (18.9) (1.1) (0.4) (0.4) (26.6) (1.3) 0.0 (0.5) 3.0 (1.2) (2.8) 45.0 (1.2) (3.0) 12.4 15.4 1.5 2.8 3 2 194 (155) 17.4 22.8 2.2 18.0 3 1 193 (164) 18.5 25.5 5.4 (11.7) 3 2 139 (119) 12.2 14.8 28.1 (7.2) 2 3 103 (104) 10.0 11.7 10.3 (12.3) 2 3 90 (77) 11.2 13.4 5.8 (30.8) 3 2 77 (44) 23.8 68.8 47.5 51.4 (3.2) (3.2) (3.0) 7.7 (5.5) (5.5) (5.2) 1.2 (14.6) (14.6) (14.3) (17.8) 2.5 1.5 2.9 (14.1) 5.1 5.1 5.4 10.9 7.6 7.6 7.8 18.5 (21.5) (21.5) (23.2) 9.0 0.0% 2.2 2.3 (10.2) 2.8 (12.4) (12.4) (13.2) 59.1 0.0% 1.3 1.2 (6.3) 2.8 (4.7) (4.7) (4.8) (3.9) 0.0% 1.0 1.1 (4.4) 30.9 (30.5) 45.2 27.1 24.1 (4.9) 0.0% 0.8 0.8 63.1 17.2 4.0 13.3 13.3 12.8 6.3 0.0% 1.0 0.8 11.6 5.1 3.5 9.1 9.1 8.8 3.7 0.0% 0.8 0.5 6.5 2.5 2.3 FY2007 FY2008 FY2009 FY2010 FY2011E FY2012E

(76.7) 2,696.1

January 27, 2011

SpiceJet | 3QFY2011 Result Update

Research Team Tel: 022 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

SpiceJet No Yes No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

January 27, 2011

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