Brokerage sees 66% rise in SpiceJet stock on healthy air traffic growth in FY24

The report expects healthy pick-up in aviation traffic in next two years, i.e., FY23-FY25E on back of healthy demand for leisure travel in post Covid era. The report noted that a better cost structure ahead on lower fuel prices, contribution of profitable cargo segment, likely strong uptick in aviation traffic with normalised situation, rising yield.

Reliance Securities maintain ‘BUY’ rating on SpiceJet, with an unrevised target price of ₹61, which shows an upside of 66 per cent at current market price of ₹36.48 on BSE.

“We expect healthy pick-up in aviation traffic over FY23-FY25E on the back of  COVID era. Considering better cost structure ahead on lower fuel prices, contribution of profitable cargo segment, likely strong uptick in aviation traffic with normalised situation, rising yield, likely debt reduction through stake divestment, fund raising triggers, conversion of debt to equity and attractive valuation, we maintain our BUY rating on SPJET, with an unrevised Target Price of ₹61,” said Reliance Securities in its report.

The report expects SpiceJet to report loss in FY23 on record high ATF prices and lag effect of cost pass, with revival in air passenger traffic. Reliance Securities has revised the revenue estimates, by decreasing it by 5% in FY23E and by 24% in FY24E

“We expect SJET to report losses in FY23E due to record high ATF prices and lag effect of cost pass on. We expect a strong revival in air passenger traffic over the next 2 years and factor 28% CAGR in ASK over FY22-FY25E (vs. -16% CAGR over FY18-FY21). Considering lower-than-expected fleet addition, we decrease our revenue estimates by 5%/24% for FY23E/FY24E. Considering the higher ATF prices and lower capacity addition, other cost inflation due to weakening INR impacting company’s performance, going forward, we revise our EBITDAR margin estimates by -107bps for FY24E, though we increase it by 115bps in FY23 factoring better than expected 3QFY23 performance,” said Reliance Securities in its report.

“We expect company’s Revenue to clock CAGR of 28% over FY22-FY25E and record a PAT of Rs8.3bn in FY25E (vs. net loss of Rs16.5bn in FY22). Stock is currently trading at a P/E valuation of 5.7x/2.7x FY24E/FY25E and EV/EBITDA of 5.7x/3.5x FY24E/FY25E. We reiterate our BUY rating on SPJET with an unrevised Target Price of Rs61, rolling forward our valuation to FY25 and valuing the stock at a revised EV/EBITDAR multiple of 4x FY25E,” it added.