Spicejet IC -030510

Initiating Coverage | AirlinesInitiating Coverage | AirlinesInitiating Coverage | AirlinesInitiating Coverage | AirlinesInitiating Coverage | Airlines

Please refer to important disclosures at the end of this report

SpiceJet is one of the fastest growing airlines in the aviation industry, with a marketshare of around 12%. Given its strong expansion plans, revival in the economyand strong passenger growth, we have assigned a target multiple of 9x FY2012EEPS of Rs9.3 to arrive at a target price of Rs84, implying an upside of 33%. Hence,Hence,Hence,Hence,Hence,we Initiate Coverage on the stock with a Buy recommendation.we Initiate Coverage on the stock with a Buy recommendation.we Initiate Coverage on the stock with a Buy recommendation.we Initiate Coverage on the stock with a Buy recommendation.we Initiate Coverage on the stock with a Buy recommendation.

LLLLLoad factors expected to remain healthy:oad factors expected to remain healthy:oad factors expected to remain healthy:oad factors expected to remain healthy:oad factors expected to remain healthy: Driven by huge losses, most airlinesreduced fleets and no new capacities were added since FY2009. With FCCs like AirIndia and Kingfisher still making huge losses, and Jet Airways barely breakingeven, we expect negligible fleet additions over FY2010-11E. But demand hasbounced back sharply in 9MFY2010 and Low-Cost Carriers (LCCs) have beenreporting 80%+ load factors. Given that the demand is expected to outpace supply,the load factors are expected to remain around 77% for FY2011E.

Higher LHigher LHigher LHigher LHigher Load Foad Foad Foad Foad Factor to increase Pactor to increase Pactor to increase Pactor to increase Pactor to increase Profitability:rofitability:rofitability:rofitability:rofitability: With the Aviation industry characterisedby very high operating leverage, an improvement in the load factor is expected todrive a substantial spurt in Profits. With 80% (66% in 3QFY2009) load factors,SpiceJet's Net Profit shot up to Rs109cr in 3QFY2010 vs. Rs43cr loss in 3QFY2009.Additionally, aided by a strong fleet addition (19% CAGR over FY2010-12E), weexpect SpiceJet's Net Profit to grow at a 51% CAGR to Rs377cr in FY2012E.

Increasing fleet and strengthening Balance Sheet: Increasing fleet and strengthening Balance Sheet: Increasing fleet and strengthening Balance Sheet: Increasing fleet and strengthening Balance Sheet: Increasing fleet and strengthening Balance Sheet: SpiceJet is expected to build astrong cash reserve of Rs874cr as on FY2011E and of Rs1,311cr by FY2012E. In aworst-case scenario, even if SpiceJet witnesses a load factor of just 50% (lowestload factor till date of 67% in FY2009), it would have enough cash to sustain itsoperational expenditure for 14 months, without diluting any equity. With US $79.8mnFCCBs getting converted by December 2010 and ~Rs350cr of QIP (not factored),Balance Sheet strength will go up further, with a Net Worth of Rs989.4cr in FY2012E.

Sharan LillaneySharan LillaneySharan LillaneySharan LillaneySharan Lillaney+91 22 4040 3800 Ext: 338

Email: [email protected]

May 3, 2010

SpiceJetSpiceJetSpiceJetSpiceJetSpiceJet BUYBUYBUYBUYBUY

Flying into Clear Skies CMP Rs62Target Price Rs84

Stock Info

Shareholding Pattern (%)

Sector Airlines

Market Cap (Rs cr) 1,505

Beta 0.9

52 Week High / Low 65/14

Avg. Daily Volume 3942106

Face Value (Rs) 10

BSE Sensex 17,559

Nifty 5,278

Reuters Code SPJT.BO

Bloomberg Code SJET@IN

Promoters 12.9

MF / Banks / Indian FIs 34.9

FII / NRIs / OCBs 28.0

Indian Public / Others 24.2

Abs. (%) 3m 1yr 3yr

Sensex 5.4 52.5 23.5

SpiceJet 5.7 335.6 38.7

Investment Period 12 Months

Source: Company, Angel Research

Key FinancialsY/E March (Rs cr)Y/E March (Rs cr)Y/E March (Rs cr)Y/E March (Rs cr)Y/E March (Rs cr) FY2009FY2009FY2009FY2009FY2009 FY2010EFY2010EFY2010EFY2010EFY2010E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E

Net SalesNet SalesNet SalesNet SalesNet Sales 1,6891,6891,6891,6891,689 2,2062,2062,2062,2062,206 2,6872,6872,6872,6872,687 3,1583,1583,1583,1583,158

% chg 30.5 30.6 21.8 17.5

Net PNet PNet PNet PNet Profitrofitrofitrofitrofit (352.6) (352.6) (352.6) (352.6) (352.6) 165.7 165.7 165.7 165.7 165.7 300.5 300.5 300.5 300.5 300.5 376.5 376.5 376.5 376.5 376.5

% chg 164.1 (147.0) 81.3 25.3

FDEPS (Rs)FDEPS (Rs)FDEPS (Rs)FDEPS (Rs)FDEPS (Rs) (14.6) (14.6) (14.6) (14.6) (14.6) 4.1 4.1 4.1 4.1 4.1 7.4 7.4 7.4 7.4 7.4 9.3 9.3 9.3 9.3 9.3

EBITDA Margin (%) (24.8) 5.9 11.9 12.6

P/E (x) (4.3) 9.1 8.4 6.7

P/CEPS (x) (4.4) 8.7 8.2 6.6

RoE (%) 175.6 (47.8) 172.2 47.0

RoCE (%) (135.9) 86.3 74.0 48.5

P/BV (x) (3.5) (5.7) 4.1 2.6

EV/Sales (x) 1.0 0.7 0.6 0.4

EV/EBITDA (x) (4.0) 11.2 5.2 3.1

May 3, 2010 2

SpiceJet | Initiating Coverage

Investment Arguments

Passenger traffic poised for strong growth

Prior to the economic turmoil, the domestic aviation industry witnessed strong demandin passenger traffic, registering a CAGR of 18% over FY2001-2008. With the growingdemand in passenger traffic, airline companies started ramping up their capacity(some by nearly 2 times) to meet the current and the future demand, which resulted ina huge increase in capacity in terms of Available Seat Kilometres (ASKM), which nearlydoubled from 35,077mn in FY2006 to 60,590mn in FY2008). However, the Aviationsector was amongst the worst hit by the economic crisis in FY2009, where demand interms of passenger traffic declined by 11%, from 44.5mn in FY2008 to 39.5mn inFY2009, which was the biggest fall in a decade. Due to the huge capacity expansionin the last few years and the plummeting demand in FY2009, almost all airlinessuffered huge losses, which forced some companies to rationalise their capacity to cutdown costs and to reduce future losses (Kingfisher rationalised its fleet from 88 to 66).

However, demand has bounced back significantly over the last 9MFY2010 and isexpected to grow by 13% for the whole FY2010E. Historically, economic growth hasbeen the primary driver of air traffic and this relationship has been even more evidentin developing countries. It has been observed that aviation grows at the rate of 1.2 to1.8 times the GDP (1.2 times in developed nations and 1.8 times in developing countrieswith pent-up demand). Assuming an annual GDP growth of ~8% and a 1.5 timesmultiple, it is estimated that domestic aviation traffic alone will grow around by12-13% annually, or by 2.5 times, from the current 40mn passengers to 100mnpassengers by 2020. Given that the demand has historically grown at an average ofaround a 13.7% CAGR over the last ten years, we expect this trend to continue, withan expected GDP of 8-9% YoY for the next three years; thus, we expect the passengertraffic demand to register CAGR of around 13% over FY2010E-FY2012E. In absoluteterms, we expect the passenger traffic to be around 44.6mn FY2010E and 56.6mn inFY2012E.

Source: DGCA, Angel Research

Exhibit 1: Strong passenger growth to continue

Passengers Carried (LHS) Growth (RHS)

(20)

(10)

0

10

20

30

40

50

0

10

20

30

40

50

60

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010E

FY2011E

FY2012E

(%)

(mn)

The passenger traffic demand is expectedThe passenger traffic demand is expectedThe passenger traffic demand is expectedThe passenger traffic demand is expectedThe passenger traffic demand is expectedto register a CAto register a CAto register a CAto register a CAto register a CAGR of around 13% overGR of around 13% overGR of around 13% overGR of around 13% overGR of around 13% overFY2010EFY2010EFY2010EFY2010EFY2010E-FY2012E-FY2012E-FY2012E-FY2012E-FY2012E.....

May 3, 2010 3


The long term demand is expected to remain high due to the low penetration of air

traffic in India. It is estimated that only 43 travellers per 1,000 travel by air, which is 12

times lower when compared to the USA (520/1,000), and nearly 5 times lower than

China (215/1,000). According to research done by IATA PaxIS, Global Insight and

Airbus, it was noted that air trips per capita increases exponentially when the Real

GDP Per Capita level rises above the US $1000 level, and until the US $10,000 level.

After the US $10,000 level, the growth tends to slow down considerably, which can be

seen in the case of all developed nations. Currently, India's Real GDP per capita is at

US $1,032, and is expected to grow by around 12-14% annually. This implies that the

Indian aviation sector as a whole is going to experience enormous growth over the

next 15-20 years. Airbus expects the sector to register a 10% CAGR over the next

20 years.

Source: IMF, Airbus

Exhibit 2: India to experience highest domestic growth

Real GDP per capita (2009) 20 years annual domestic growth forecast

0

2

4

6

8

10

12

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

India

Chin

a

Bra

zil

RSA

Russ

ia

Aus/

NZ

Cen.

Eur.

West

.Eur.

U.S

(%)

(US

$)

Brazil

0.001

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000

0.01

0.1

1

Trips per capita - 2008

2008 Real GDP per Capita

10

Barbados

Pass

enge

rorig

inat

ing

from

apa

rticu

lar c

ount

ry(p

er‘0

00)

Bahrain

Bahamas

New ZealandUAE Ireland

Switzerland

Netherlands

USA

UK

Samoa

Mauritius

Panama Saudi Arabia

Bosnia

Nigeria

Iraq

Niger

Maldives

Italy

Slovenia

South Korea

Trinidad

Portugal

Hong Kong

Greece

Germany

Kuwait

Mexico

Poland

China

IndiaWorld average

Russia

Australia

Exhibit 3: Large potential to increase propensity to travel

Source: IATA PaxIS, Global Insight, Airbus; Note:GDP in 2005 US$

Low penetration of air traffic in India

The long term demand is expected toThe long term demand is expected toThe long term demand is expected toThe long term demand is expected toThe long term demand is expected to

remain high due to the low penetrationremain high due to the low penetrationremain high due to the low penetrationremain high due to the low penetrationremain high due to the low penetration

of air traffic in Indiaof air traffic in Indiaof air traffic in Indiaof air traffic in Indiaof air traffic in India

May 3, 2010 4


No. of AircraftsNo. of AircraftsNo. of AircraftsNo. of AircraftsNo. of Aircrafts FY2010EFY2010EFY2010EFY2010EFY2010E FY2011EFY2011EFY2011EFY2011EFY2011E FY2012EFY2012EFY2012EFY2012EFY2012E FY2013EFY2013EFY2013EFY2013EFY2013E

Indian Airlines 80 80 81 81

Jet Airways 63 63 63 73

Jet Lite 16 16 18 20

Indigo 25 34 42 52

Kingfisher 46 46 52 61

SpiceJet 19 23 27 27

Paramount 5 5 5 5

GoAir 8 8 8 8

TTTTTotalotalotalotalotal 262262262262262 275275275275275 296296296296296 327327327327327

yoy growth (%) 5 8 10

Exhbit 4: Low capacity addition


Demand expected to outpace supply

The major triggers for profitability for the whole aviation sector in FY2011E and FY2012E

will be lower capacity additions, which will lead to greater demand when compared

to supply, resulting in higher profitability due to increasing load factors. FY2011E will

see a major supply-demand gap being created, as demand is expected to increase by

13% while supply is expected to rise by only 5%.

We expect the total Domestic fleet size to increase by around 5% in FY2011E and by

around 8% in FY2012E. Prior to the economic downturn, huge orders were placed by

Kingfisher, Indian Airlines and Jet airways, which have now been deferred by at least

18 months; thus, any major capacity expansion for these airlines will only come in

after FY2012E, which will give a strong boost to LCC players like SpiceJet to expand

their market share and to maintain a high load factor. The major chunk of the growth

in domestic fleet size in FY2011E and FY2012E will be added by the two LCCs, SpiceJet

and IndiGo airlines, since these are the only companies that are going ahead with

their orders and are expected to take delivery on time.

The total Domestic fleet size to increaseThe total Domestic fleet size to increaseThe total Domestic fleet size to increaseThe total Domestic fleet size to increaseThe total Domestic fleet size to increase

by only around 5% in FY2011E and byby only around 5% in FY2011E and byby only around 5% in FY2011E and byby only around 5% in FY2011E and byby only around 5% in FY2011E and by

around 8% in FY2012Earound 8% in FY2012Earound 8% in FY2012Earound 8% in FY2012Earound 8% in FY2012E

May 3, 2010 5


Strong Passenger growth to resume for SpiceJet

Currently, LCCs are the preferred mode for domestic airline travellers as, being

cost-efficient, they can provide cheaper tickets. This would benefit LCCs such as SpiceJet,

which can offer significantly lower fares to attract more value-conscious passengers.

In fact, there has been a considerable shift in passenger traffic towards LCCs, with

more than 55% passengers preferring them. This has even led to Full-Cost Carriers

(FCCs) like Jet and Kingfisher to convert part of their capacity to a no-frills, low-cost

model.

SpiceJet is one of the fastest growing LCCs, and, given the change in preference from

FCCs to LCCs, it is best placed to benefit from the economic recovery and the growing

passenger traffic demand. Even when the Industry passenger traffic declined by 11%

in FY2009, SpiceJet increased the number of passengers carried, from 4.5mn to

4.59mn in FY2009, due to its low-cost model. Moreover, the efficacy of the low-cost

model was clearly noticeable, as Spicejet increased its market share by more than

50%, from 8% in FY2008 to around 12% in FY2009, with a corresponding increase

of only 28% in fleet size in FY2009.


Exhibit 5: Domestic airlines market share

We expect SpiceJet's passenger growth to continue at the previous levels of around

50% CAGR and which will be supported by its fleet expansion plans. We expect the

company to carry around 6.6mn passengers in FY2010E (a growth of ~44%), and

expect this growth to continue to 7.9mn and 9.3mn passengers in FY2011E and

FY2012E, respectively.

The company is expected to carry aroundThe company is expected to carry aroundThe company is expected to carry aroundThe company is expected to carry aroundThe company is expected to carry around

6.6mn passengers in FY2010E (a growth6.6mn passengers in FY2010E (a growth6.6mn passengers in FY2010E (a growth6.6mn passengers in FY2010E (a growth6.6mn passengers in FY2010E (a growth

of ~44%)of ~44%)of ~44%)of ~44%)of ~44%)

SpiceJet increased its market share bySpiceJet increased its market share bySpiceJet increased its market share bySpiceJet increased its market share bySpiceJet increased its market share by

more than 50%, from 8% in FY2008 tomore than 50%, from 8% in FY2008 tomore than 50%, from 8% in FY2008 tomore than 50%, from 8% in FY2008 tomore than 50%, from 8% in FY2008 to

around 12% in FY2009around 12% in FY2009around 12% in FY2009around 12% in FY2009around 12% in FY2009

May 3, 2010 6


Load Factors to improve due to lower capacity expansion

With the demand coming back to normal after the economic recovery, and with only

a few capacity additions (after the capacity rationalisation by FCCs in FY2009), all

LCCs have currently reported strong Load Factors of around 80%+. SpiceJet has

reported load factors to the tune of 82% and 81% for the months of January and

February, 2010, respectively. Going forward, we expect the load factors to remain

high, as the demand is expected to outpace the supply, with most companies (Jet

Airways and Kingfisher) having deferred their orders, which will lead to a low growth

rate in the ASKM and a higher growth in the RPKM (Revenue Performed Kilometres).

We expect the domestic ASKM to remain constant for FY2010E at 59,160mn, as

hardly any new fleets have been added during the year; for FY2012E, the ASKM is

expected to be around 68,981mn. On the other hand, demand is expected to continue

its robust growth; thus, the RPKM is expected to be around 42,606mn in FY2010E and

to increase to 54,403mn in FY2012E. The overall domestic industry load factors are

expected to be around 72% in FY2010E, 77% in FY2011E and 79% in FY2012E.


Exhibit 7: ASKM to grow at a slower rate for the industry

Domestic ASKM (LHS) Domestic RPKM (LHS) Load Factor (RHS)

0

10

20

30

40

50

60

70

80

90

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY0

0

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0E

FY1

1E

FY1

2E

Stagnant

(km

mn)

(%)


Exhibit 6: SpiceJet to continue strong passenger growth

Spicejet Pax Carried (LHS, mn) Domestic Pax Carried (LHS, mn)

Domestic Growth (RHS, %) Spicejet Growth (RHS, %)

3.044.50 4.59

6.627.87 9.25

35.8

44.4

39.5

44.6

50.4

56.9

(20)

0

20

40

60

80

100

120

140

0

10

20

30

40

50

60

FY07 FY08 FY09 FY10E FY11E FY12E

The load factors are expected to remainThe load factors are expected to remainThe load factors are expected to remainThe load factors are expected to remainThe load factors are expected to remain

high, as the demand is expected tohigh, as the demand is expected tohigh, as the demand is expected tohigh, as the demand is expected tohigh, as the demand is expected to

outpace the supplyoutpace the supplyoutpace the supplyoutpace the supplyoutpace the supply

May 3, 2010 7


Available Seat Kms(LHS, mn) KMS Performed(LHS, mn) Load Factor (RHS)

0

10

20

30

40

50

60

70

80

90

100

0

100

200

300

400

500

600

700

800

900

Jan

-09

Feb-0

9

Mar-

09

Apr-

09

May-

09

Jun

-09

Jul-

09

Aug

-09

Sep-0

9

Oct

-09

Nov-

09

Dec

-09

Jan

-10

Feb-1

0

(%)

Source: DGCA

Exhibit 8: SpiceJet registering strong load factors

SpiceJet expected to outperform its peers

We have conducted an analysis between the Financial Lease and the Operating Leasebusiness models adopted by different airline companies, to find out which is bestsuited for the Indian aviation sector, and how the profitability of the companies isdetermined by the model that they adapt. Companies such as Kingfisher and JetAirways, which use the financial lease mode where they own aircrafts, have shownweaker balance sheets, owing to a higher incidence of depreciation and interest costs,as compared to companies like SpiceJet, which follow the operating lease model,where, rather than buying the aircraft, they lease it for a fixed period of time.

Full Cost Carriers v/s Low Cost Carriers - Jet Airways v/s SpiceJet

SpiceJet is a no frills airline; thus, its ticket prices does not include any additionalservices, which helps the company reduce its average Pax yields. This is unlike JetAirways, which provides food and beverage services, included in the cost of the ticket,and which results in higher Pax yields. SpiceJet operates the single-fleet type, Boeing737 NG, which helps them to reduce their maintainance cost by 20% per seat. SpiceJethas the highest aircraft utilisation rate of 12 hours, which helps the company add oneextra flight a day with a similar fixed cost, when compared to its peers. Additionally,SpiceJet has a cost advantage over Jet Airways, as it has an average of 195 seats peraircraft, which is nearly 22% more when compared to an average of 160 seats/aircraft for Jet Airways (Domestic).

This difference in seats per aircrafts provides SpiceJet with an advantage over JetAirways, since, with most of the costs are fixed per aircraft, these additional seats helpSpiceJet in reducing its cost per aircraft by generating more revenue at the same cost.As a result of this, SpiceJet can reduce the average Pax yield without reducing itsprofitability margin. For 9MFY2010, The average Pax yield for SpiceJet is aroundRs3,256, compared to a Pax yield of Rs4,706 for Jet Airways. It has been observedthat when the Pax yield moves above Rs3,750, it results in a declining load factor. Thisis clearly visible in the case of SpiceJet (Pax yield of Rs3,256), which reported a 77%load factor, while Jet Airways (Pax yield of Rs3,750) managed to generate acomparatively lower load Factor of 71% for 9MFY2010.

Since most of the costs are fixed perSince most of the costs are fixed perSince most of the costs are fixed perSince most of the costs are fixed perSince most of the costs are fixed peraircraft, additional seats per aircraft helpaircraft, additional seats per aircraft helpaircraft, additional seats per aircraft helpaircraft, additional seats per aircraft helpaircraft, additional seats per aircraft helpSpiceJet in reducing their cost per aircraftSpiceJet in reducing their cost per aircraftSpiceJet in reducing their cost per aircraftSpiceJet in reducing their cost per aircraftSpiceJet in reducing their cost per aircraft

May 3, 2010 8


Due to its higher Pax yield, Jet Airways is able to generate a higher Revenue/ASKM ofRs4.3, compared to SpiceJet's Revenue/ASKM of only Rs2.4. However, on the EBITDAlevel, Jet Airways managed to generate only Rs0.4/ASKM, which was lower thanSpiceJet's Rs0.5/ASKM, mainly because of higher operating costs. In percentage terms,Jet Airways reported an 8.8% margin, which is nearly half of SpiceJet's margin of19%. However, Jet Airways (Domestic + International) registered a 77% load factor,on the back of better performance from international operations (load factor of 80%).On the EBITDAR level, Jet Airways (Domestic + International) reported a margin of18%.

Operating Lease v/s Financial Lease - SpiceJet v/s Jet Airways (Domestic+ International)

The choice of business model has become the main differentiator between SpiceJetand Jet Airways. While SpiceJet operates on a 100% operating lease model, Jet Airwaysoperates on a mix of a financial lease and operating lease model. Since Jet Airways isa highly-leveraged company, on the back of its mixed lease model (under which itfinances aircraft purchases through debt), the interest and depreciation costs havebecome major causes of concern. Although both the companies managed almostsimilar margins of 18% and 19% at the EBITDAR level, the difference in the PBT ishuge. At the PBT level, SpiceJet reported a margin of 2.1%, largely because thedepreciation and interest costs are negligible (does not own any aircrafts). On theother hand, Jet Airways reported a negative PBT margin of 6.9%, inspite of similarEBITDAR margins, because of the high depreciation cost on their owned aircraft andthe high interest cost on the outstanding debt. We believe that the financial leasemodel has been a major impediment for Jet Airways.

Hence, we believe that the operating lease model is better than the financial leasemodel, as rentals on aircraft cost 10-11% of the total value of the aircraft annually;additionally, these contracts are highly flexible and short-term in nature (3-8 years). Inthe airline industry, where the working capital requirement is generally negative, theoperating lease model makes the whole business non-capital intensive.

Companies need to be profitable to increase capacity

All aviation companies in India have been in the red in FY2009, and this fact has notbeen any different for the 9MFY2010 except in the case of SpiceJet, which is the onlylisted player to have reported a profit of Rs34cr (as against a loss of Rs526cr for JetAirways and Rs1,075cr for Kingfisher). Since companies such as Jet Airways andKingfisher have been making huge losses over the last couple of years, and are highlyfinancially leveraged, not many aircraft leasing companies are interested in leasingout planes to them, since there is the risk of default on regular lease payments (whichis the case for Paramount Airlines). Thus, if these companies have to expand their fleetsize, we believe that they first have to be profitable for at least a couple of years, so asto fund their future expansion through internal accruals, rather than adding on moredebt and increasing their interest burden.

May 3, 2010 9


Jet AirwaysJet AirwaysJet AirwaysJet AirwaysJet Airways SpiceJetSpiceJetSpiceJetSpiceJetSpiceJet

Consol.Consol.Consol.Consol.Consol. Int.Int.Int.Int.Int. DomesticDomesticDomesticDomesticDomestic

TTTTTotal Incomeotal Incomeotal Incomeotal Incomeotal Income 7,582 7,582 7,582 7,582 7,582 4,420 4,420 4,420 4,420 4,420 3,161 3,161 3,161 3,161 3,161 1,616 1,616 1,616 1,616 1,616

Load Factors 77 80 71 77

ASKM 2,148 1,418 730 664

PKM 1,654 1,135 519 511

Revenue/ASKM 3.5 3.1 4.3 2.4

Revenue/PKM 4.6 3.9 6.1 3.2

Aircraft Fuel Exp 2,305 1,358 947 600

(% of Net Sales) 30.4 31 30.0 37.2

Fuel/ASKM 1.1 1.0 1.3 0.9

Employee 920.1 427.4 492.7 133.9

(% of Net Sales) 12.1 10 16 8.3

Employee/ASKM 0.4 0.3 0.7 0.2

Other Exp 3,006 1,562 1,444 575

(% of Net Sales) 39.6 35 46 35.6

Other Exp/ASKM 1.4 1.1 2.0 0.9

TTTTTotalotalotalotalotal 6,231 6,231 6,231 6,231 6,231 3,348 3,348 3,348 3,348 3,348 2,884 2,884 2,884 2,884 2,884 1,309 1,309 1,309 1,309 1,309

(% of Net Sales) 82 76 91 81

Total Cost/ASKM 2.9 2.4 4.0 2.0

EBITDEBITDEBITDEBITDEBITDARARARARAR 1,350 1,350 1,350 1,350 1,350 1,073 1,073 1,073 1,073 1,073 278 278 278 278 278 307 307 307 307 307

(% of Net Sales) 17.8 24.3 8.8 19.0

EBITDAR/ASKM 0.6 0.2 0.4 0.5

Rentals 615.9 295.8 320.1 294.9

(% of Net Sales) 8.1 7 10 18.2

Rentals/ASKM 0.3 0.2 0.4 0.4

EBITDEBITDEBITDEBITDEBITDAAAAA 734.5 734.5 734.5 734.5 734.5 776.7 776.7 776.7 776.7 776.7 (42.2) (42.2) (42.2) (42.2) (42.2) 11.7 11.7 11.7 11.7 11.7

(% of Net Sales) 9.7 18 (1) 0.7

Dep 725.9 529.1 196.8 5.8

(% of Net Sales) 9.6 12.0 6.2 0.4

EBITEBITEBITEBITEBIT 8.6 8.6 8.6 8.6 8.6 247.6 247.6 247.6 247.6 247.6 (239.0) (239.0) (239.0) (239.0) (239.0) 5.9 5.9 5.9 5.9 5.9

(% of Net Sales) 0.1 5.6 (7.6) 0.4

Interest 728.1 368.5 359.6 5.1

(% of Net Sales) 9.6 8.3 11.4 0.3

EBT&OEBT&OEBT&OEBT&OEBT&O.I..I..I..I..I. (719.5) (719.5) (719.5) (719.5) (719.5) (120.9) (120.9) (120.9) (120.9) (120.9) (598.6) (598.6) (598.6) (598.6) (598.6) 0.8 0.8 0.8 0.8 0.8

(% of Net Sales) (9.5) (2.7) (18.9) 0.1

Other Income 163.9 35.8 128.1 37.2

(% of Net Sales) 2.2 0.8 4.1 2.3

E.I 29.4 1.8 27.6 (4.0)

EBTEBTEBTEBTEBT (526.2) (526.2) (526.2) (526.2) (526.2) (83.3) (83.3) (83.3) (83.3) (83.3) (442.9) (442.9) (442.9) (442.9) (442.9) 34.0 34.0 34.0 34.0 34.0

(% of Net Sales) (6.9) (1.9) (14.0) 2.1

Tax (0.1) 0.4 0.5 -

Reported Peported Peported Peported Peported PAAAAATTTTT (526.2) (526.2) (526.2) (526.2) (526.2) (83.8) (83.8) (83.8) (83.8) (83.8) (442.4) (442.4) (442.4) (442.4) (442.4) 34.0 34.0 34.0 34.0 34.0

(% of Net Sales) (7) (2) (14) 2

Exhbit 9: Business Model Comparison (9MFY2010) (Rs cr)(Rs cr)(Rs cr)(Rs cr)(Rs cr)


May 3, 2010 10


High Load factor to increase profitability

Given that almost all costs are largely fixed in the Aviation Industry, the improvementin the load factor is expected to drive a substantial spurt in Profits. This was clearlyvisible for SpiceJet, which reported an average load factor of 80% over the last sixmonths (among the highest in the industry), and reported Net Profit of Rs109cr (loss ofRs43cr in 3QFY2009) in 3QFY2010. SpiceJet's EBITDAR Margin, at 31%, is also thehighest compared to its listed peers (20.2% for Jet Airways, 17.7% for JetLite), due toits Operating lease-based, low-cost models.

Going forward, with hardly a 5% increase expected in capacity in FY2011E, the wholedomestic aviation sector is going to experience high load factors. Historically, SpiceJethas been reporting better load factors than the industry, and we expect this trend tocontinue in the future, as well. With strong expansion plans, robust passenger growthand lower capacity additions, SpiceJet is expected to experience load factors of around76% for FY2010E, 81% in FY2011E and 80% in FY2012E.

With an expected increase in fleet size from 19 planes to around 27 planes by FY2012E(4 planes in CY2011E and 4 planes in CY2012E), SpiceJet is expected to increase itspassengers carried from 4.6mn in FY2009 to 6.6mn in FY2010E and to 9.3mn inFY2012E, at an estimated CAGR of 26% over FY2009-FY2012E. This is higher thanthe estimated overall passenger CAGR of 13% for the entire industry over the sameperiod, and will result in an increase in the market share for SpiceJet (expected toincrease from 12% in FY2009 to 17% in FY2012E).

Gross Profit/ASKM Cost/ASKM Load Factor

1.14

0.99 0.99 1.03

1.58

1.79 1.76

1.52 1.481.41

1.61

1.43

1.471.41

0

10

20

30

40

50

60

70

80

90

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2006 2007 2008 2009 2010E 2011E 2012E

(%)

(Rs)


Exhibit 10: Profits to surge with increasing load factors

Given that almost all costs are largelyGiven that almost all costs are largelyGiven that almost all costs are largelyGiven that almost all costs are largelyGiven that almost all costs are largelyfixed in the Aviation Industryfixed in the Aviation Industryfixed in the Aviation Industryfixed in the Aviation Industryfixed in the Aviation Industry, the, the, the, the, theimprovement in the load factor isimprovement in the load factor isimprovement in the load factor isimprovement in the load factor isimprovement in the load factor isexpected to drive a substantial spurt inexpected to drive a substantial spurt inexpected to drive a substantial spurt inexpected to drive a substantial spurt inexpected to drive a substantial spurt inPPPPProfitsrofitsrofitsrofitsrofits

May 3, 2010 11


Strong expansion plans to aid robust revenue growth

SpiceJet will be taking delivery of about 9 aircrafts by FY2012E based on its existingorders, taking its total fleet size to 27 aircrafts. The increase in capacity and strongload factors will provide a strong revenue visibility for SpiceJet. The company's revenuesare expected to grow at a CAGR of 23% over FY2009-FY2012E, and, concurrently, itsnet profit is expected to register a CAGR of 31% over FY2010E-FY2012E, in absoluteterm an increase of Rs300cr & Rs377cr in FY2011E-12E and the company's revenuesare expected to be around Rs2,206cr in FY2010E, Rs2,687cr in FY2011E and Rs3,158crin FY2012E.


Exhibit 11: Strong revenues contributing to profits

Operating Revenue Net Profit(1,000)

(500)

-

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010E 2011E 2012E

(Rs

cr)

Strengthening Balance Sheet

Substantial increase in Networth and Cash Reserves

The company's US $79.8mn FCCBs are likely to get converted into equity by December2010 (at Rs25/share). After the conversion, the total outstanding equity will stand at40.4cr shares. After the conversion of the FCCBs, the company will have a total ofRs82cr of debt on its books, which we expect it to repay by the end of FY2011E.SpiceJet is also planning to raise around Rs350cr through a QIP to fund its futureexpansion plans. Along with its strong profitability, the company's Balance sheet strengthwill also go up significantly, with an estimated Net worth of about Rs989.4cr, a netcash balance of Rs1,311cr by FY2012E.

We expect SpiceJet to report strong profitability for FY2011E, due to revived demandand a relatively lower domestic fleet addition (just 5%). In order to test the balancesheet strength of the company, we have undertaken a scenario analysis to identify itssustainability on the back of its cash position. SpiceJet is expected to build a strongcash reserve of Rs874cr as on FY2011E. In a worst case scenario, where SpiceJetwitnesses a load factor of just 50%, it would have enough cash to sustain its operationalexpenditure for 14 months, without diluting any equity. Historically, SpiceJet haswitnessed a lowest load factor of 67% in FY2009; hence, it has a substantial marginof safety, with its average load factor being 76% between FY2006-2009. Even if SpiceJetexperiences lower load factors to the extent of 65% in FY2012E, it is expected to have

SpiceJet will be taking delivery of aboutSpiceJet will be taking delivery of aboutSpiceJet will be taking delivery of aboutSpiceJet will be taking delivery of aboutSpiceJet will be taking delivery of about9 aircrafts by FY2012E based on its9 aircrafts by FY2012E based on its9 aircrafts by FY2012E based on its9 aircrafts by FY2012E based on its9 aircrafts by FY2012E based on itsexisting orders, taking its total fleet sizeexisting orders, taking its total fleet sizeexisting orders, taking its total fleet sizeexisting orders, taking its total fleet sizeexisting orders, taking its total fleet sizeto 27 aircraftsto 27 aircraftsto 27 aircraftsto 27 aircraftsto 27 aircrafts

The company's Balance sheet strengthThe company's Balance sheet strengthThe company's Balance sheet strengthThe company's Balance sheet strengthThe company's Balance sheet strengthwill also go up significantlywill also go up significantlywill also go up significantlywill also go up significantlywill also go up significantly, with an, with an, with an, with an, with anestimated Net worth of about Rs989.4crestimated Net worth of about Rs989.4crestimated Net worth of about Rs989.4crestimated Net worth of about Rs989.4crestimated Net worth of about Rs989.4cr,,,,,a net cash balance of Rs1,311cr bya net cash balance of Rs1,311cr bya net cash balance of Rs1,311cr bya net cash balance of Rs1,311cr bya net cash balance of Rs1,311cr byFY2012EFY2012EFY2012EFY2012EFY2012E.....

In a worstIn a worstIn a worstIn a worstIn a worst-----case scenario, where SpiceJetcase scenario, where SpiceJetcase scenario, where SpiceJetcase scenario, where SpiceJetcase scenario, where SpiceJetwitnesses a load factor of just 50%, itwitnesses a load factor of just 50%, itwitnesses a load factor of just 50%, itwitnesses a load factor of just 50%, itwitnesses a load factor of just 50%, itwould have enough cash to sustain itswould have enough cash to sustain itswould have enough cash to sustain itswould have enough cash to sustain itswould have enough cash to sustain itsoperational expenditure for 14 months,operational expenditure for 14 months,operational expenditure for 14 months,operational expenditure for 14 months,operational expenditure for 14 months,without diluting any equitywithout diluting any equitywithout diluting any equitywithout diluting any equitywithout diluting any equity

May 3, 2010 12


Lower-than-expected traffic growth

Any downturn in the economy can lead to lower-than-expected passenger traffic growth,which can have a negative impact on load factors, and can eventually have a negativeimpact on the profitability.

LLLLLoad Foad Foad Foad Foad Factor (FY2012E) (%)actor (FY2012E) (%)actor (FY2012E) (%)actor (FY2012E) (%)actor (FY2012E) (%) 5050505050 5555555555 6060606060 6565656565 7070707070 7575757575 8080808080 8585858585

PAT (FY2012E) (582) (422) (262) (103) 57 217 377 536Source: Company, Angel Research

Exhibit 13: Sensitivity of PAT to change in low factors (Rs cr)

Concerns

Low Entry Barriers and Highly Competitive

There is low entry barrier for the aviation sector, as any company can start an airlinebased on the operating lease model, which requires minimum capital to begin withand most of the fixed assets can be acquired at 1% of the total cost per month. Theentry of new players can lead to an increase in capacity and will eventually lead to anincrease in competition among airlines resulting in a price war as companies will beforced to reduce their ticket prices, which will result in a lower average yield and willhave a negative impact on revenues in the short run (it can also lead to losses). Suchintensive competition was clearly visible during FY2007-08, due to excessive capacityadditions, which resulted in lower industry load factors and lower profitability. Existingplayers can also increase their capacity which will lead to lower than expected loadfactor due to higher capacity.

LLLLLoad Foad Foad Foad Foad Factor (FY2012E) (%)actor (FY2012E) (%)actor (FY2012E) (%)actor (FY2012E) (%)actor (FY2012E) (%) 5050505050 5555555555 6060606060 6565656565 7070707070 7575757575 8080808080 8585858585

Revenues (FY2012E) 1,974 2,171 2,369 2,566 2,763 2,961 3,158 3,356

Expenses (FY2012E) 2,737 2,741 2,745 2,749 2,753 2,757 2,761 2,764

EBITDA (FY2012E) (763) (570) (376) (183) 11 204 398 591

Cash (FY2011E) 874 874 874 874 874 874 874 874

PAT (FY2012E) (582) (422) (262) (103) 57 217 377 536

Cash / EBITDA Loss (x) 14 18 28 57 - - - -

Exhibit 12: Scenario Analysis for FY2012E (Rs cr)


built a strong cash position to sustain itself for nearly five years. Given its capability tosurvive the downturns with lower leverage, we expect SpiceJet to outperform its peers.

May 3, 2010 13


ATF prices

Historically, an increase in ATF prices usually leads to an increase in Pax Yields, becausethe company passes on the additional fuel cost to the consumers. It is noted that theload factor lends to dip dramatically when the Pax Yield moves above the Rs3,750level. Given the current scenario, the Pax Yield is expected to be around the Rs3,400level in FY2011E and crude oil is expected to be around $87.5 levels. This implies thatfor Pax Yield to move above Rs3,750 level the crude oil should be around $100 levels.Thus, if the price of crude oil moves above $100, the company could face a significantdip in load factors, which will lead to lower profitability.


Exhibit 14: Higher Pax yield leading to lower load factor

59%

76%71% 70%

56%

66%72%

76% 75%80%

(80)

(60)

(40)

(20)

0

20

40

60

0

10

20

30

40

50

60

70

80

90

Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310

Load Factors (LHS) Pax Yield change (RHS) Atf Price Change (RHS)

$75 $91 $98 $124 $119 $58 $43 $60 $68 $76Crude

Pax Yield 2189 2860 2854 3170 3928 3882 2703 2981 2586 3251

(%)

(%)

Net PNet PNet PNet PNet Profit (Rs cr)rofit (Rs cr)rofit (Rs cr)rofit (Rs cr)rofit (Rs cr) P P P P Pax yield change (%)ax yield change (%)ax yield change (%)ax yield change (%)ax yield change (%)

(2.5) (2.5) (2.5) (2.5) (2.5) 2.5 2.5 2.5 2.5 2.5 7.5 7.5 7.5 7.5 7.5 12.5 12.5 12.5 12.5 12.5 17.5 17.5 17.5 17.5 17.5

(2.5) (2.5) (2.5) (2.5) (2.5) 231 337 443 549 655

AAAAATFTFTFTFTF price change (%) price change (%) price change (%) price change (%) price change (%) 2.5 2.5 2.5 2.5 2.5 194 300 300 300 300 300 406 513 619

7.5 7.5 7.5 7.5 7.5 158 264 370 476 582

12.5 12.5 12.5 12.5 12.5 121 227 333 439 545

17.5 17.5 17.5 17.5 17.5 84 190 297 403 509


Exhibit 15: Sensitivity of PAT to change in ATF and Pax yield (FY2011E)

May 3, 2010 14


Financial Overview

In FY2009, the company's registered an increase of 30% in revenues, even during theeconomic downturn, due to a higher yield per pax (passenger) of Rs3,356 (Rs2,605 inFY2008). In 9MFY2010, SpiceJet's revenue have increased by 27% to Rs1,616cr (fromRs1273cr in 9MFY2009), aided by strong passenger growth and higher load factors(to the tune of 80%+). The average Pax yield for 3QFY2010 stood at Rs3,256 and isexpected to continue to remain in these levels, going ahead, in 4QFY2010E.

In 4QFY2010E, we expect the company to report a strong revenue on a yoy basis, asthe demand has picked up substantially, with the economy back on track and withSpiceJet reporting 80%+ load factors for the months of January and February, 2010.We expect an increase of about 42% yoy in the 4QFY2010E Top-line to Rs590cr,mainly on the back of a revival in passenger traffic and high load factors. For FY2010E,we expect an increase of 31% in the top-line. In absolute terms, we estimate revenuesto increase from Rs1,689cr in FY2009 to Rs2,206cr in FY2010E. Going ahead, weexpect revenues to increase to Rs2,687cr and Rs3,158cr in FY2011E and FY2012E,respectively. After FY2010E, revenues will be mainly driven by a strong expansion offleets and strong passenger growth.


Exhibit 16: Robust Growth in Revenues to continue

311

749

1,295

1,689

2,206

2,687

3,158

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2006 2007 2008 2009 2010E 2011E 2012E

Operating Revenue

(Rs

cr)

Operating Margins to turn around

SpiceJet's operating margins have always been in the red, and the company reportedan operating loss for FY2009, mainly because of the poor economic conditions, lowerpassenger traffic and higher ATF prices. But, with the economy reviving, the scenariohas changed for SpiceJet, as the passenger traffic is back to its previous levels and ATFprices have stabilised, due to which the company reported a positive OPM in3QFY2010, to the tune of 16%. In absolute terms, the company reported Operatingprofit of Rs109cr, which is the highest amongst all its listed peers. SpiceJet has beenreporting strong load factors for the first 2 months of 4QFY2010; thus, we expect itreport a positive OPM for this quarter as well. The company is expected to report itsfirst positive OPM for the whole year FY2010E, at 6%. In absolute terms, we expect thecompany to report an Operating Profit of around Rs157cr for FY2010E. Going ahead,we expect the OPM to gradually improve to 12% and 12.6% for FY2011E and FY2012E,respectively. In absolute terms, we expect the company to register an operating profit

Revenues expected to increase by 30.6%Revenues expected to increase by 30.6%Revenues expected to increase by 30.6%Revenues expected to increase by 30.6%Revenues expected to increase by 30.6%from Rs1,689cr in FY2009 to Rs2,206crfrom Rs1,689cr in FY2009 to Rs2,206crfrom Rs1,689cr in FY2009 to Rs2,206crfrom Rs1,689cr in FY2009 to Rs2,206crfrom Rs1,689cr in FY2009 to Rs2,206crin FY2010Ein FY2010Ein FY2010Ein FY2010Ein FY2010E

SpiceJet is expected to report its firstSpiceJet is expected to report its firstSpiceJet is expected to report its firstSpiceJet is expected to report its firstSpiceJet is expected to report its firstpositive OPM for the whole yearpositive OPM for the whole yearpositive OPM for the whole yearpositive OPM for the whole yearpositive OPM for the whole yearFY2010EFY2010EFY2010EFY2010EFY2010E, at 6%., at 6%., at 6%., at 6%., at 6%.

May 3, 2010 15


of Rs319cr and Rs398cr in FY2011E and FY2012E, respectively (compared to anoperating loss of Rs419cr in FY2009), mainly because of robust passenger trafficgrowth, lower capacity additions and better load factors.

Company to register its first ever Net Profit in FY2010E

SpiceJet registered its worst ever loss in FY2009 to the tune of (Rs353cr) mainly becauseof lower load factors and higher ATF prices. But things have turnaround for the companyas it has reported a profit of Rs109cr for the 3QFY2010 which is the highest profitamongst listed peers. This turnaround is set to continue in the 4QFY2010 on back ofhigher load factors which the company has been reporting in the first two months ofthis quarter. For the whole FY2010E, we expect the company to register a NPM around7.5% (-21%) and a Net profit of Rs166cr (-Rs353cr). This profit making trend is set tocontinue going ahead for FY2011E and FY2012E as demand is expected to outpacesupply and thus will result in higher load factors for the company. We expect the NPMto improve to 11.2% and 11.9% in FY2011E and FY2012E respectively. In absoluteterms we expect the Net profit to increase from (353cr) in FY2009 to Rs300.5cr inFY2011E and Rs376.5cr in FY2012E.


Exhibit 18: SpiceJet will register its first ever net profit in FY2010E

Net Profit (LHS) Margin (RHS)

(33) (77)(134)

(353)

166

300

377

(25)

(20)

(15)

(10)

(5)

0

5

10

15

(400)

(300)

(200)

(100)

-

100

200

300

400

500

2006 2007 2008 2009 2010E 2011E 2012E

(%)

(Rs

cr)


Exhibit 17: Strong Turnaround in operating profits

Net Profit (LHS) Margin (RHS)

(33) (77)(134)

(353)

166

300

377

(25)

(20)

(15)

(10)

(5)

0

5

10

15

(400)

(300)

(200)

(100)

-

100

200

300

400

500

2006 2007 2008 2009 2010E 2011E 2012E

(%)

(Rs

cr)

Net profit is expected to increase fromNet profit is expected to increase fromNet profit is expected to increase fromNet profit is expected to increase fromNet profit is expected to increase from(Rs353cr) in FY2009 to Rs300.5cr in(Rs353cr) in FY2009 to Rs300.5cr in(Rs353cr) in FY2009 to Rs300.5cr in(Rs353cr) in FY2009 to Rs300.5cr in(Rs353cr) in FY2009 to Rs300.5cr inFY2011E and Rs376.5cr in FY2012EFY2011E and Rs376.5cr in FY2012EFY2011E and Rs376.5cr in FY2012EFY2011E and Rs376.5cr in FY2012EFY2011E and Rs376.5cr in FY2012E.....

May 3, 2010 16


Outlook and Valuation

SpiceJet is present in a high growth industry and is one of the fastest growing LCCs,and, given the change in preference from FCCs to LCCs, it is best placed to benefitfrom the economic recovery and the growing passenger traffic demand. Going forward,with hardly a 5% growth expected in capacity in FY2011E, the whole domestic aviationsector is going to experience high load factors. Historically, SpiceJet has been reportingbetter load factors than the industry, and we expect this trend to continue in the future,as well.

With strong expansion plans, robust passenger growth and lower capacity additions,SpiceJet is expected to experience load factors of around 77% for FY2010E, 81% inFY2011E and 80% in FY2012E. SpiceJet will be taking delivery of about9 planes by FY2012E based on its existing orders, taking its total fleet size to 27planes.

The increase in capacity and strong load factors will provide a strong revenue visibilityfor SpiceJet and it is expected to register a CAGR of 20% in revenues overFY2010E-FY2012E. SpiceJet is expected to build a strong cash reserve of Rs1,311crand Net Worth of Rs989.4cr as on FY2012E. With the revival in the economy, strongpassenger growth, high load factors, strengthening balance sheet and strong revenuevisibility, we initiate coverage on the stock with a Buy recommendation and a targetwe initiate coverage on the stock with a Buy recommendation and a targetwe initiate coverage on the stock with a Buy recommendation and a targetwe initiate coverage on the stock with a Buy recommendation and a targetwe initiate coverage on the stock with a Buy recommendation and a targetmultiple of 9x FY2012E EPS of Rs9.3, to arrive at a target price of Rs84, implying amultiple of 9x FY2012E EPS of Rs9.3, to arrive at a target price of Rs84, implying amultiple of 9x FY2012E EPS of Rs9.3, to arrive at a target price of Rs84, implying amultiple of 9x FY2012E EPS of Rs9.3, to arrive at a target price of Rs84, implying amultiple of 9x FY2012E EPS of Rs9.3, to arrive at a target price of Rs84, implying aupside of 33%.upside of 33%.upside of 33%.upside of 33%.upside of 33%.

Revenues (Rs cr) Revenues (Rs cr) Revenues (Rs cr) Revenues (Rs cr) Revenues (Rs cr) Net PNet PNet PNet PNet Profit (Rs cr) EPS rofit (Rs cr) EPS rofit (Rs cr) EPS rofit (Rs cr) EPS rofit (Rs cr) EPS P/E (x) P/E (x) P/E (x) P/E (x) P/E (x) RoE (%)RoE (%)RoE (%)RoE (%)RoE (%) EPS Growth (%)EPS Growth (%)EPS Growth (%)EPS Growth (%)EPS Growth (%) TTTTTargetargetargetargetarget

FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY11EFY11EFY11EFY11EFY11E FY12EFY12EFY12EFY12EFY12E FY12EFY12EFY12EFY12EFY12E (Rs)(Rs)(Rs)(Rs)(Rs)

SpiceJet 2,687 3,158 300.5 376.5 7.4 9.3 7.9 6.3 172.2 47.0 25.3 84

Jet Airways* 13,695 15,739 300.4 604.6 16.7 54.3 32.1 9.9 28.2 19.2 224.7 (N/A)

Source: Company, Angel Research; Note: * Bloomberg Consensus Figures

Exhibit 19: Comparative Valuation

May 3, 2010 17


Company Background

SpiceJet Ltd was incorporated in the year 1984, with the name Genius Leasing Finance

and Investment Company Ltd. It was only in the year 1993 that the company ventured

into domestic aviation operations under a technical partnership with Deutsche Lufthansa

AG and started managing the entire airline operations by June 1994. The company

suspended its Airline operations in the year 1996 after dissension, and, in the year

2000-01, the name of the company was changed from ModiLuft Ltd to Royal Airways

Ltd. The company started its commercial operations of domestic flight services on May

23, 2005, with three leased Boeing 737-800 aircraft. During the year 2004-05, it

signed an agreement with Boeing for acquiring 20 (737-800) aircrafts and in

May 4, 2005, the company changed its name from Royal Airways Ltd to SpiceJet Ltd.

Currently, SpiceJet is the one of the fastest-growing LCCs in India, with a market share

of around 12%. The company operates a single-aircraft-type fleet (Boeing 737), which

allows for greater efficiency in maintenance, and supports its low-cost structure. SpiceJet

currently has 20 aircrafts and operates flights to 19 destinations all over India (with

125 flights daily). It operates on a point-to-point model and has its primary hub in

Delhi. The company was awarded the best LCC airline in the HT MaRS study for

2009. The company will finish five years of domestic operations in May 2010, and will

be starting international operations from June 2010, with flights to Kathmandu,

Colombo and Dhaka.

May 3, 2010 18


Profit & Loss Statement (Consolidated) Rs croreY/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007 FY2007 FY2007 FY2007 FY2007 FY2008 FY2008 FY2008 FY2008 FY2008 FY2009 FY2009 FY2009 FY2009 FY2009 FY2010E FY2010E FY2010E FY2010E FY2010E FY2011E FY2011E FY2011E FY2011E FY2011E FY2012E FY2012E FY2012E FY2012E FY2012E

Gross sales 749 1,295 1,689 2,206 2,687 3,158

Net Sales 749 1,295 1,689 2,206 2,687 3,158

TTTTTotal operating incomeotal operating incomeotal operating incomeotal operating incomeotal operating income 749 749 749 749 749 1,295 1,295 1,295 1,295 1,295 1,689 1,689 1,689 1,689 1,689 2,206 2,206 2,206 2,206 2,206 2,687 2,687 2,687 2,687 2,687 3,158 3,158 3,158 3,158 3,158

% chg 140.5 72.8 30.5 30.6 21.8 17.5

Total Expenditure 920 1,547 2,109 2,075 2,368 2,761

Fuel & Oil 399 703 945 817 933 1,111

Other Mfg costs 187.1 345.2 476.4 592.6 649.8 737.3

Personnel 97.2 143.2 155.1 170.6 204.7 235.4

Other 88.8 103.4 173.0 105.1 108.4 122.6

EBITDEBITDEBITDEBITDEBITDAAAAA (170.3) (170.3) (170.3) (170.3) (170.3) (252.0) (252.0) (252.0) (252.0) (252.0) (419.2) (419.2) (419.2) (419.2) (419.2) 130.7 130.7 130.7 130.7 130.7 318.6 318.6 318.6 318.6 318.6 397.7 397.7 397.7 397.7 397.7

% chg 226.8 47.9 66.3 (131.2) 143.8 24.8

(% of Net Sales) (22.7) (19.5) (24.8) 5.9 11.9 12.6

Depreciation& Amortisation 5.8 7.8 7.3 8.0 8.4 8.9

EBITEBITEBITEBITEBIT (176.2) (176.2) (176.2) (176.2) (176.2) (259.8) (259.8) (259.8) (259.8) (259.8) (426.4) (426.4) (426.4) (426.4) (426.4) 122.7 122.7 122.7 122.7 122.7 310.2 310.2 310.2 310.2 310.2 388.8 388.8 388.8 388.8 388.8

% chg 192.3 47.5 64.1 (128.8) 152.9 25.3

(% of Net Sales) (23.5) (20.1) (25.2) 5.6 11.5 12.3

Interest & other Charges 4.3 13.7 16.0 8.2 4.1 -

Other Income 107.8 143.6 124.1 55.1 67.2 79.0

(% of PBT) (148.5) (110.5) (39.0) 32.5 18.0 16.9

Recurring PBTRecurring PBTRecurring PBTRecurring PBTRecurring PBT (72.6) (72.6) (72.6) (72.6) (72.6) (130.0) (130.0) (130.0) (130.0) (130.0) (318.3) (318.3) (318.3) (318.3) (318.3) 169.6 169.6 169.6 169.6 169.6 373.2 373.2 373.2 373.2 373.2 467.8 467.8 467.8 467.8 467.8

% chg 98.5 79.0 145.0 (153.3) 120.1 25.3

Extraordinary Expense/(Inc.) 3.4 1.1 30.9 3.9 - -

PBT (reported)PBT (reported)PBT (reported)PBT (reported)PBT (reported) (76.0) (76.0) (76.0) (76.0) (76.0) (131.1) (131.1) (131.1) (131.1) (131.1) (349.2) (349.2) (349.2) (349.2) (349.2) 165.7 165.7 165.7 165.7 165.7 373.2 373.2 373.2 373.2 373.2 467.8 467.8 467.8 467.8 467.8

Tax 1.0 2.4 3.3 - 72.8 91.2

(% of PBT) (1.3) (1.8) (1.0) 0.0 19.5 19.5

PPPPPAAAAAT (reported)T (reported)T (reported)T (reported)T (reported) (77.0) (77.0) (77.0) (77.0) (77.0) (133.5) (133.5) (133.5) (133.5) (133.5) (352.6) (352.6) (352.6) (352.6) (352.6) 165.7 165.7 165.7 165.7 165.7 300.5 300.5 300.5 300.5 300.5 376.5 376.5 376.5 376.5 376.5

PPPPPAAAAAT after MI (reported)T after MI (reported)T after MI (reported)T after MI (reported)T after MI (reported) (77.0) (77.0) (77.0) (77.0) (77.0) (133.5) (133.5) (133.5) (133.5) (133.5) (352.6) (352.6) (352.6) (352.6) (352.6) 165.7 165.7 165.7 165.7 165.7 300.5 300.5 300.5 300.5 300.5 376.5 376.5 376.5 376.5 376.5

ADJADJADJADJADJ. P. P. P. P. PAAAAATTTTT (77.0) (77.0) (77.0) (77.0) (77.0) (133.5) (133.5) (133.5) (133.5) (133.5) (352.6) (352.6) (352.6) (352.6) (352.6) 165.7 165.7 165.7 165.7 165.7 300.5 300.5 300.5 300.5 300.5 376.5 376.5 376.5 376.5 376.5

% chg 119.8 73.4 164.1 (147.0) 81.3 25.3

(% of Net Sales) (10.3) (10.3) (20.9) 7.5 11.2 11.9

Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs)Basic EPS (Rs) (3.2) (3.2) (3.2) (3.2) (3.2) (5.5) (5.5) (5.5) (5.5) (5.5) (14.6) (14.6) (14.6) (14.6) (14.6) 6.9 6.9 6.9 6.9 6.9 7.4 7.4 7.4 7.4 7.4 9.3 9.3 9.3 9.3 9.3

FFFFFully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs)ully Diluted EPS (Rs) (3.2) (3.2) (3.2) (3.2) (3.2) (5.5) (5.5) (5.5) (5.5) (5.5) (14.6) (14.6) (14.6) (14.6) (14.6) 4.1 4.1 4.1 4.1 4.1 7.4 7.4 7.4 7.4 7.4 9.3 9.3 9.3 9.3 9.3

% chg 68.3 73.4 163.7 (128.1) 81.3 25.3

May 3, 2010 19


Balance Sheet (Consolidated) Rs crore

Y/E MarchY/E MarchY/E MarchY/E MarchY/E March FY2007 FY2007 FY2007 FY2007 FY2007 FY2008 FY2008 FY2008 FY2008 FY2008 FY2009 FY2009 FY2009 FY2009 FY2009 FY2010E FY2010E FY2010E FY2010E FY2010E FY2011E FY2011E FY2011E FY2011E FY2011E FY2012E FY2012E FY2012E FY2012E FY2012E

SOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDSSOURCES OF FUNDS

Equity Share Capital 240.7 240.7 241.0 241.0 403.6 403.6

Reserves& Surplus (56.1) (212.7) (670.5) (504.8) 209.2 585.8

Shareholders FShareholders FShareholders FShareholders FShareholders Fundsundsundsundsunds 184.6 184.6 184.6 184.6 184.6 28.0 28.0 28.0 28.0 28.0 (429.5) (429.5) (429.5) (429.5) (429.5) (263.8) (263.8) (263.8) (263.8) (263.8) 612.8 612.8 612.8 612.8 612.8 989.4 989.4 989.4 989.4 989.4

Total Loans 432.2 540.1 488.8 488.8 - -

TTTTTotal Liabilitiesotal Liabilitiesotal Liabilitiesotal Liabilitiesotal Liabilities 616.7 616.7 616.7 616.7 616.7 568.1 568.1 568.1 568.1 568.1 59.4 59.4 59.4 59.4 59.4 225.0 225.0 225.0 225.0 225.0 612.8 612.8 612.8 612.8 612.8 989.4 989.4 989.4 989.4 989.4

APPLICAAPPLICAAPPLICAAPPLICAAPPLICATION OF FUNDSTION OF FUNDSTION OF FUNDSTION OF FUNDSTION OF FUNDS

Gross Block 62.1 86.5 95.8 106.3 118.0 131.0

Less: Acc. Depreciation 13.7 21.4 28.2 36.2 44.7 53.6

Net BlockNet BlockNet BlockNet BlockNet Block 48.4 48.4 48.4 48.4 48.4 65.1 65.1 65.1 65.1 65.1 67.6 67.6 67.6 67.6 67.6 70.1 70.1 70.1 70.1 70.1 73.3 73.3 73.3 73.3 73.3 77.4 77.4 77.4 77.4 77.4

Capital Work-in-Progress 694.4 498.9 185.3 164.7 82.3 6.8

InvestmentsInvestmentsInvestmentsInvestmentsInvestments 81.2 81.2 81.2 81.2 81.2 0.4 0.4 0.4 0.4 0.4 - - - - - - - - - - - - - - - - - - - -

Current Assets 479.9 796.9 497.9 791.6 1,170.5 1,654.3

Cash 351.1 608.1 308.0 544.9 873.8 1,311.2

Loans & Advances 115.4 176.2 154.3 201.4 245.4 288.4

Inventories 7.9 11.1 12.5 18.1 22.1 26.0

Debtors 5.6 1.6 12.4 16.3 19.9 23.4

Other - - 10.8 10.8 9.3 5.4

Current liabilities 687.1 793.2 691.4 801.3 713.3 749.1

Net Current AssetsNet Current AssetsNet Current AssetsNet Current AssetsNet Current Assets (207.2) (207.2) (207.2) (207.2) (207.2) 3.8 3.8 3.8 3.8 3.8 (193.5) (193.5) (193.5) (193.5) (193.5) (9.7) (9.7) (9.7) (9.7) (9.7) 457.2 457.2 457.2 457.2 457.2 905.2 905.2 905.2 905.2 905.2

TTTTTotal Assetsotal Assetsotal Assetsotal Assetsotal Assets 616.7 616.7 616.7 616.7 616.7 568.1 568.1 568.1 568.1 568.1 59.4 59.4 59.4 59.4 59.4 225.0 225.0 225.0 225.0 225.0 612.8 612.8 612.8 612.8 612.8 989.4 989.4 989.4 989.4 989.4

Cash Flow Statement (Consolidated) Rs crore


Profit before tax (183.8) (274.7) (473.3) 110.5 306.1 388.8

Depreciation 5.8 7.8 7.3 8.0 8.4 8.9

Change in Working Capital 488.0 76.9 (179.0) 120.8 103.3 108.0

ADD: Other income 107.8 143.6 124.1 55.1 67.2 79.0

Direct taxes paid 1.0 2.4 3.3 - 72.8 91.2

Cash Flow from OperationsCash Flow from OperationsCash Flow from OperationsCash Flow from OperationsCash Flow from Operations 416.9 416.9 416.9 416.9 416.9 (48.8) (48.8) (48.8) (48.8) (48.8) (524.3) (524.3) (524.3) (524.3) (524.3) 294.6 294.6 294.6 294.6 294.6 412.2 412.2 412.2 412.2 412.2 493.4 493.4 493.4 493.4 493.4

(Inc.)/ Dec. in Fixed Assets (334.7) 171.1 304.3 (10.5) (11.7) (13.0)

(Inc.)/ Dec. in Investments (81.2) 80.9 0.4 - - -

(Inc.)/ Dec. in loans and advances (33.7) (60.8) 21.9 (47.2) (43.9) (43.0)

Other income/Expense 68.7 6.7 (57.8) 0.0 - -

Cash Flow from InvestingCash Flow from InvestingCash Flow from InvestingCash Flow from InvestingCash Flow from Investing (380.9) (380.9) (380.9) (380.9) (380.9) 197.9 197.9 197.9 197.9 197.9 268.8 268.8 268.8 268.8 268.8 (57.7) (57.7) (57.7) (57.7) (57.7) (55.6) (55.6) (55.6) (55.6) (55.6) (56.0) (56.0) (56.0) (56.0) (56.0)

Issue of Equity 240.4 - 6.6 - 54.6 -

Inc./(Dec.) in loans 21.7 108.0 (51.3) - (82.2) -

Cash Flow from FCash Flow from FCash Flow from FCash Flow from FCash Flow from Financinginancinginancinginancinginancing 262.1 262.1 262.1 262.1 262.1 108.0 108.0 108.0 108.0 108.0 (44.7) (44.7) (44.7) (44.7) (44.7) - - - - - (27.7) (27.7) (27.7) (27.7) (27.7) - - - - -

Inc./(Dec.) in Cash 298.1 257.0 (300.1) 236.9 328.9 437.4

Opening Cash balancesOpening Cash balancesOpening Cash balancesOpening Cash balancesOpening Cash balances 52.9 52.9 52.9 52.9 52.9 351.1 351.1 351.1 351.1 351.1 608.1 608.1 608.1 608.1 608.1 308.0 308.0 308.0 308.0 308.0 544.9 544.9 544.9 544.9 544.9 873.8 873.8 873.8 873.8 873.8

Closing Cash balancesClosing Cash balancesClosing Cash balancesClosing Cash balancesClosing Cash balances 351.1 351.1 351.1 351.1 351.1 608.1 608.1 608.1 608.1 608.1 308.0 308.0 308.0 308.0 308.0 544.9 544.9 544.9 544.9 544.9 873.8 873.8 873.8 873.8 873.8 1,311.2 1,311.2 1,311.2 1,311.2 1,311.2

May 3, 2010 20


Key Ratios


VVVVValuation Ratios (x)aluation Ratios (x)aluation Ratios (x)aluation Ratios (x)aluation Ratios (x)

P/E (on FDEPS) (19.5) (11.3) (4.3) 15.2 8.4 6.7

P/E (on basic, reported EPS) (19.5) (11.3) (4.3) 9.1 8.4 6.7

P/CEPS (21.1) (12.0) (4.4) 8.7 8.2 6.5

P/BV 8.1 53.8 (3.5) (5.7) 4.1 2.5

Market cap. / Sales 2.0 1.2 0.9 0.7 0.9 0.8

EV/Sales 2.1 1.1 1.0 0.7 0.6 0.4

EV/EBITDA (9.3) (5.7) (4.0) 11.1 5.2 3.0

EV / Total Assets 2.6 2.5 28.4 6.4 2.7 1.2

PPPPPer Share Data (Rs)er Share Data (Rs)er Share Data (Rs)er Share Data (Rs)er Share Data (Rs)

EPS (Basic) (3.2) (5.5) (14.6) 6.9 7.4 9.3

EPS (fully diluted) (3.2) (5.5) (14.6) 6.9 7.4 9.3

Cash EPS (3.0) (5.2) (14.3) 7.2 7.7 9.5

DPS - - - - - -

Book Value 7.7 1.2 (17.8) (10.9) 15.2 24.5

Returns (%)Returns (%)Returns (%)Returns (%)Returns (%)

ROCE (Pre-tax) - - - 86.3 74.0 48.5

ROE - - - - 172.2 47.0

TTTTTurnover ratios (x)urnover ratios (x)urnover ratios (x)urnover ratios (x)urnover ratios (x)

Asset Turnover (Total Assets) 1.5 2.2 5.4 15.5 6.4 3.9

Oper. Income / Invested Capital 2.8 18.0 (11.7) (7.8) (9.3) (10.8)

Inventory / Sales (days) 2.8 2.7 2.5 2.5 2.7 2.8

Receivables (days) 2.2 1.0 1.5 2.4 2.5 2.5

Payables (days) 193.9 192.7 139.1 102.4 92.9 82.4

WC cycle (ex-cash) (days) (154.6) (163.8) (119.5) (87.4) (66.0) (47.5)

Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)Solvency ratios (x)

Gross debt to equity 2.3 19.3 (1.1) (1.9) - -

Net debt to equity 80.7 (2.4) (0.4) 0.2 (1.4) (1.3)

Net debt to EBITDA 0.0 0.3 (0.4) (0.4) (2.7) (3.3)

Interest Coverage (EBIT / Interest) (41.3) (18.9) (26.6) 14.9 75.4 -

SpiceJet

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Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Ratings (Returns) :

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2. Angel and its Group companies ownership of the stock No

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SpiceJet

Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.Tel : (022) 3952 4568 / 4040 3800

Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE: INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302

Research Team

Fundamental:

Sarabjit Kour Nangra VP-Research, Pharmaceutical [email protected]

Vaibhav Agrawal VP-Research, Banking [email protected]

Vaishali Jajoo Automobile [email protected]

Shailesh Kanani Infrastructure, Real Estate [email protected]

Anand Shah FMCG , Media [email protected]

Deepak Pareek Oil & Gas [email protected]

Puneet Bambha Capital Goods, Engineering [email protected]

Sushant Dalmia Pharmaceutical [email protected]

Rupesh Sankhe Cement, Power [email protected]

Param Desai Real Estate, Logistics, Shipping [email protected]

Sageraj Bariya Fertiliser, Mid-cap [email protected]

Viraj Nadkarni Retail, Hotels, Mid-cap [email protected]

Paresh Jain Metals & Mining [email protected]

Amit Rane Banking [email protected]

Rahul Jain IT, Telecom [email protected]

Jai Sharda Mid-cap [email protected]

Sharan Lillaney Mid-cap [email protected]

Amit Vora Research Associate (Oil & Gas) [email protected]

V Srinivasan Research Associate (Cement, Power) [email protected]

Aniruddha Mate Research Associate (Infra, Real Estate) [email protected]

Shreya Gaunekar Research Associate (Automobile) [email protected]

Mihir Salot Research Associate (Logistics, Shipping) [email protected]

Chitrangda Kapur Research Associate (FMCG, Media) [email protected]

Vibha Salvi Research Associate (IT, Telecom) [email protected]

Pooja Jain Research Associate (Metals & Mining) [email protected]

Technicals:

Shardul Kulkarni Sr. Technical Analyst [email protected]

Mileen Vasudeo Technical Analyst [email protected]

Derivatives:

Siddarth Bhamre Head - Derivatives [email protected]

Jaya Agarwal Derivative Analyst [email protected]

Sandeep Patil Jr. Derivative Analyst [email protected]

Institutional Sales Team:

Mayuresh Joshi VP - Institutional Sales [email protected]

Abhimanyu Sofat AVP - Institutional Sales [email protected]

Nitesh Jalan Sr. Manager [email protected]

Pranav Modi Sr. Manager [email protected]

Sandeep Jangir Sr. Manager [email protected]

Ganesh Iyer Sr. Manager [email protected]

Jay Harsora Sr. Dealer [email protected]

Meenakshi Chavan Dealer [email protected]

Gaurang Tisani Dealer [email protected]

Production Team:

Bharathi Shetty Research Editor [email protected]

Dharmil Adhyaru Assistant Research Editor [email protected]

Bharat Patil Production [email protected]

Dilip Patel Production [email protected]

Documents

Spicejet IC -030510