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Business News/ Market / Mark-to-market/  SpiceJet: is the best yet to come?
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SpiceJet: is the best yet to come?

If the external environment continues to remain favourable, the December quarter, which is typically stronger, should be even better, reckon analysts

SpiceJet may end up surpassing the net profit of Rs101 crore seen in fiscal year 2011, its best year in the last ten years. Photo: Ramesh Pathania/MintPremium
SpiceJet may end up surpassing the net profit of Rs101 crore seen in fiscal year 2011, its best year in the last ten years. Photo: Ramesh Pathania/Mint

SpiceJet Ltd’s June quarter net profit is better than its March quarter’s profit not only because it’s bigger at 72 crore, but also because the March quarter profit was boosted by an extraordinary item.

The quarterly numbers are operationally strong; operating profit stood at 100 crore on revenues of 1,106 crore, translating into a margin of as much as 9%. That compares with an operating loss in the same period last year.

Not surprisingly, SpiceJet shares spiked when the numbers were announced. Of course, the drop in crude oil prices has helped the airline tremendously. While the softer crude oil environment was expected to benefit aviation companies in general, the magnitude of the improvement in SpiceJet’s numbers is surprising. Note that the company’s aircraft fuel expenses as a percentage of revenue in the June quarter stood at 32.4%, the lowest SpiceJet has seen in the past ten quarters at least. The load factor for the June quarter was impressive at 89.8%. The airline had ended the March quarter with a load factor of 81%.

On a year-on-year basis, SpiceJet’s revenue fell 34% to 1,106 crore in keeping with the capacity reduction. According to the company, on a unit basis, even as revenue per available seat kilometre (RASK) was flattish compared with the year ago quarter, cost per available seat kilometre (CASK) declined 13%.

But while the June quarter was good, the million dollar question is whether this is sustainable? The outlook on crude oil is bearish, what with expected supplies from Iran into the global oil markets. The direction of crude oil prices will determine to a large extent the direction of the SpiceJet stock, which has already gone up 55% so far in 2015. It also helps that passenger growth has been exciting. In fact, between January and June, the number of passengers carried by domestic airlines increased by 20% year-on-year, according to data from Directorate General of Civil Aviation. That compares with a growth of 4.5% in 2014.

If the external environment continues to remain favourable, after a seasonally slower September quarter, the December quarter, which is typically stronger, should be even better, reckon analysts. This could also mean that SpiceJet may end up surpassing the net profit of 101 crore seen in fiscal year 2011, its best year in the last ten years.

While that augurs well, a reminder of the balance sheet should curb the enthusiasm. As on 31 March, SpiceJet had a negative networth of 1,264.52 crore and debt (long-term borrowings plus short-term borrowings) of 1,418 crore. The airline clarified recently that a few investors have evinced interest in making investments into the company but the discussions are at a preliminary stage. Needless to say, developments on this front will be crucial.

The writer does not own shares in the above-mentioned companies.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 28 Jul 2015, 08:05 PM IST
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