Financial Reporting Analysis of SpiceJet

Presented By
Group 10
Arathi Mohan PGP/17/260
Kunal Hande
PGP/17/272
Anshul Nagdive
PGP/17/279
Ritika Sharma PGP/17/289
Shakun Grover PGP/17/295

An overview
Industry background
Current - 117 million domestic and 43 million international passengers
In 10 years - 337 million domestic and 84 million international
passengers
Currently the 9th largest civil aviation market in the world
3rd largest aviation market by 2020

FY 11-14
Aircraft movement CAGR
3.3%
Passenger traffic CAGR
5.6%
Freight expansion CAGR
9.9%

Company background

Low-cost airline operated by the Sun Group of India

Started operations in 1995
20% market share; 75% passenger load traffic
Fleet: Boeing 737-800, Bombardier Dash 8
Connects around 45 Indian and a few international destinations

Vertical analysis Income Statement

SpiceJet

SpiceJet

Jet
Airways

Jet
Airways

FY13-14

FY12-13

FY13-14

FY12-13

100.00%

100.00%

100.00%

100.00%

Power & Fuel Cost

50.88%

48.71%

40.51%

40.18%

Employee Cost

9.00%

9.14%

10.72%

8.87%

Other Manufacturing Expenses

18.52%

14.03%

37.19%

27.71%

Selling and Admin Expenses

0.00%

0.00%

8.18%

7.81%

Miscellaneous Expenses

33.43%

28.72%

9.46%

7.08%

Total Expenses

111.83%

100.60%

106.06%

91.65%

Operating Profit

-13.30%

-3.41%

-8.38%

5.19%

PBDIT

-11.83%

-0.60%

-10.13%

8.96%

Interest

1.53%

1.27%

5.63%

6.43%

PBDT

-13.36%

-1.87%

-15.76%

2.53%

(In Rs. crores)

Total Income

Remarks

Expenditure
Fuel costs form a higher part than industry peer Jet
Airways causing total expenses to rise

Spicejet performed better than industry average

but rising expenses may be concern in future

A large share of misc expenses is not healthy

Total expenses are increasing, while some airlines
have managed to strike profits

Low level of financial cost

Vertical analysis Balance Sheet

in Rs. Crores

SJ FY 1314

SJ FY 1213

JA FY 1314

Share capital

18.24%

15.77%

0.62%

0.46%

Money received against share

warrants

1.13%

0.44%

0.00%

0.00%

-54.12%
-34.74%

-23.52%
-7.31%

-12.75%
-12.13%

-2.29%
-1.83%

Long-term borrowings

42.13%

46.56%

35.64%

36.62%

Trade payables

3.76%

3.27%

0.00%

0.00%

Other long-term liabilities

0.99%

0.73%

1.99%

1.95%

Long-term provisions

0.55%

0.38%

1.17%

0.67%

47.43%

50.94%

38.79%

39.24%

Short-term borrowings

9.54%

8.08%

11.10%

10.41%

Trade payables

35.45%

21.87%

26.35%

25.02%

Other current liabilities

42.12%

26.24%

35.12%

26.60%

Short-term provisions

0.19%

0.18%

0.76%

0.56%

87.31%

56.36%

73.34%

62.59%

Reserves and surplus

Total Shareholders Funds

Equities
and
Liabilities

Total Non-Current Liabilities

Total Current Liabilities

JA FY 12Remarks
13
High level of equity a strength

Negative reserves pose risk of exhaustion

Negative shareholder's funds are worrisome

Higher portion of long term debt than

competitors due to new leases

Trade payables have incresed this year

significantly

Significant increase in CL, probably drained

out reserves and surplus
Increased investment in fixed assets

Ratio Analysis
Liquidity

SpiceJet
Current ratio Jet Airways
SpiceJet
Quick ratio Jet Airways
SpiceJet
Days'
collection
Jet Airways

0.18
0.33
0.16
0.38
8.88
24.91

negative
--negative
---6.34
-2.15

ROA
ROI

ROE
ROCE

SpiceJet
Jet Airways
SpiceJet
Jet Airways
SpiceJet
Jet Airways

Profitability Asset turnover Leverage

ROE
2013-14
-0.16
2.18
-2.88
2012-13
-0.03
1.88
-13.68

Decreased Increased
Increased

-0.16

Jet Airways
SpiceJet

-0.21
0.06

Operating profit
margin
Jet Airways

-0.10

SpiceJet
Long-term D/E Jet Airways
SpiceJet
Leverage/Capit
al structure
Total D/E
Jet Airways
SpiceJet
Interest
coverage
Jet Airways

Operating
performance

SpiceJet
Net profit
margin

-0.30
-3.68
0.98
0.98
-2.02
-0.51

0.98
0.85

Accts
Receivable
turnover
Asset utilization Working capital
turnover
Total asset
turnover

SpiceJet

41.09

Jet Airways
SpiceJet
Jet Airways
SpiceJet
Jet Airways

14.65
-3.05
-2.00
2.18
5.70

Valuation
analysis

SpiceJet
P/E multiple Jet Airways
SpiceJet
Earnings yield Jet Airways
SpiceJet
Price-to-book Jet Airways

Dupont Analysis
Profitability has decreased despite increase in sales; this shows an
increase in operating expenses; possibly due to the rising costs of
aviation turbine fuel

-0.73
-0.60
-1.37
-1.66
-0.85
-1.32

Cash flow statement analysis

Major sources of cash

Net CFO is positive; CFI: Margin money deposits withdrawn, Interest received; CFF:
proceeds from issue of share capital, Money received against share warrants, Proceeds
from short-term borrowings, Advance received against share warrants

Major uses of cash

CFO: Interest expense; CFI: Margin money deposits placed, purchase of fixed assets; CFF:
repayment of long-term and short-term borrowings, interest paid

CFO (YoY basis)

CFO in 2012-13: Rs. -538.05 million; CFO in 2013-14: Rs. 589.6 million

Is CFO > Net Income?

CFO: Rs. 589.6 million; Loss of Rs. 10032.44 million

If yes, reason for CFO > Net

Income?

Could be because of very high trade payables, interest expense, depreciation and
amortization

Is CFO > Capex?

Purchase of fixed assets: Rs. 820.9 million, so Capex is greater than CFO

Major source for Capex

Share capital, share warrants, short-term borrowings, margin money deposits withdrawn

Trends

Decrease in net income (i.e. higher loss); Decrease in Capex; No dividends (The Board of
Directors have not recommended any dividend in view of the performance of the Company
for
the financial year ended March 31, 2014); net borrowing has decreased (net repayment
made)

Cash flow adequacy ratio

- 0.067; As it is <1 here, the CFO for Spicejet isnt sufficient to fund its purchase of fixed
assets and inventories year on year. It indicates potential liquidity problems.

Though Spicejet is not making profits, its CFO is positive. Huge amount of cash outflow is there in the form of repayment of longterm debts and so CFF is negative, but this trend is a representative of the aviation industry as a whole.

Depreciation and Credit Analysis

Revenue (INR Crore)
CAGR:24
%

2,161

2,934

5,715

6,356

3,998

FY10

FY11

7.64

8.91

3.2%

4.5%

-13.2%

83.55
-1.5%

-13.6%

Net Profit Margin 2.8%

3.4%

-15.2%

-3.3%

-15.8%

Depreciation
(INR Crore)
PBIT Margin

FY12
31.00

FY13

FY14
148.26

Depreciation is calculated using the straight

line method in the manner specified in
Schedule XIV to the Companies Act, at the
rates prescribed therein or at the rates
based on management's estimate of the
useful lives of such assets, whichever is
higher
Assets individually costing INR 5,000 or less
are fully depreciated in the year of purchase

Credit Analysis (FY

2013-14)

1. Interest Coverage Ratio:

-6.34
- Ideal value should be 3:1 or 4:1
2. Debt Service Coverage Ratio:
-0.73
- Ideal value should be 2:1
3. Debt to equity:
i. Long term debt to equity: 1.37
ii.Based
on above
analysis,
it can be
(Long
term debt
+ Current
concluded
that to
SpiceJet
may
face high
Liabilities)
equity:
3.88
cost of borrowing in future

Beneish M- Score
Derived Variables

Other L/T Assets [TA-(CA+PPE)]

Inferences

5995.98

4927.91

DSRI

1.317

GMI

1.236

AQI

1.273

SGI

1.126

DEPI

0.607

SGAI

1.105

TATA

-0.362

LVGI

1.256

M-score

5 variable model

-2.23

8 variable model

-3.68

The model creates a value which you can easily use to

determine if there is a high probability that a company is
manipulating its financial statements
Is made up of 8 components: M= 4.84 + 0.92 DSRI +
0.528 GMI + 0.4.404 AQI + 0.892 SGI + 0.115
DEPI 0.172 SGAI + 4.679 TATA 0.327 LVGI
DSRI: Large increases indicates attempt by Management
to inflate revenues
GMI: Measured as ratio of GM in ( t-1) to t; value greater
than 1 indicates deterioration
AQI: Asset quality is measured as ratio of non-current
assets to total assets
SGI: ratio of sales in t to (t-1); high SGI creates certain
expectations for management
DEPI: ratio of depreciation in (t-1) to t; greater than 1
indicates fraudulent practices
SGAI: ratio of SG&A expenses in t to (t-1); increase in
administrative expenses
TATA: Higher accruals indicates a higher chance of
manipulation; not in this case
LVGI: a ratio greater than 1 indicates increase in leverage

As the Beneish score is -2.23 which is very close to the threshold value of -2.22; it is more likely that the firm is
manipulating its financials

Future Outlook for SpiceJet

Formation of majority government and lifting of economic gloom may help
aviation industry to grow around 9-10% next year
SpiceJet has decided not to add any additional capacity during FY 2014-15 and
has reduced its capacity in Q1 of FY 2014-15
SpiceJet will be focused on improving its asset utilization keeping the capacity
flat over the next two years
The core emphasis will be on customer centricity by improvements like on time
performance, hassle free travel, clean aircraft, etc.
Higher fuel prices and rising foreign exchange rate are going to be big concerns
for SpiceJet over the next year
Emergence of new airlines and advantages to airlines i.e. Air Asia who has
come under FDI regulations are going to emerge as new competitors in highly
competitive market
Along with domestic expansion, SpiceJet is looking to add more international
destinations in its network as low cost carriers like SpiceJet, Indigo, JetLite, Go
Air are slowly increasing their foothold on international routes
Advance purchase sales and promotion to improve load factor

THANK YOU