Edelweiss Securities has given a buy recommendation on SpiceJet with a target price of Rs 179.Shares of SpiceJet traded at Rs 128.5 around 2:20 pm on 26 June, 2019.
The brokerage has set a one-year horizon for the stock to hit the target price.
"We maintain buy/sector outperformer with a target price of Rs 179 per share (8 times FY21E EV/Ebitdar)," said the brokerage.SpiceJet is planning to onboard over 60 aircraft in FY20, with fleet size jumping nearly 2 times to 136 by FY20, assuming MAX deliveries resume from August.
Given that Jet employees have been on-boarded along with its aircraft, management does not foresee supply constraints.
Moreover, additional five Jet aircraft have been offered to SpiceJet, for which discussions are underway.
Deliveries of 737 MAX will resume in earnest from Q2FY20, accounting for 23 aircraft additions in FY20.
SpiceJet continues to work with Boeing on compensation for 737 MAX grounding; the extent and mode of cash reimbursements will be taken up once MAX is re-instated.
Break down of 60 aircraft deliveries in FY20 30 B-737 NG (Jet), 23 737 MAX, four freighters and three Bombardier Q-400."With over 50 per cent of Jets domestic and international slots yet to be redistributed, we perceive an upside risk to SpiceJets earnings," said the brokerage.
Spike in capacity growth, lower fuel prices and higher yields will lead to the company clocking PAT of Rs 770 crore in FY20E versus a loss in FY19, the brokerage added.
As per the brokerage, SpiceJets revenue maximisation strategy has been backed by tactical pricing and dynamic revenue management which has successfully propped occupancy (industry best PLF of more than 90 per cent plus for 30 consecutive months).
The companys yield is almost similar to IndiGo, but superior asset utilisation ensures that it earns 10 per cent higher revenue per seat flown (as of FY18), said the brokerage.
Unlike competition, SpiceJets current scale (smaller fleet) prevents cannibalisation, thereby maximising revenue.
This, coupled with obsessive focus on ancillary revenue generation, has paid rich dividends.
Next big focus on industry leading cost structure Shirking legacy issues and to ensure structural cost advantages, management is restructuring its long-term contracts.
Towards this, it is working with lessors and other service providers to rationalise its cost base.
Moreover, SpiceJet has sealed a 205-aircraft order to lower ownership costs and avail structural advantages.