[Type text] [Type text] [Type text]

Mar 29, 2010

Recommendations <= 1 year 1 - 2 yrs 2 - 5 yrs
SPICEJET LTD. STRONG BUY Strong Buy
Buy
Hold
SpiceJet Ltd. (SpiceJet) is one of India’s leading low cost carrier (LCC) and was
Reduce
earlier known as Modiluft. Having started its services in May 2005, SpiceJet was Sell
Strong Buy – Expected Returns > 20% p.a.
among the first private companies that stepped into the Indian aviation sector. Buy – Expected Returns from 10 to 20% p.a.
Hold – Expected Returns from 0 % to 10% p.a.
Reduce – Expected Returns from 0 % to 10% p.a. with
Currently it has a fleet of 19 Boeing 737-800/737-900ER aircrafts and has an possible downside risk
Sell – Returns < 0 %
extensive network with 19 destinations in India. With 125 flights and impeccable
standards of hospitality, the airline is hugely popular and flies over 500,000 people in
a month. It also has one of the best on-time performances in India of ~82% along STOCK DATA
with a technical dispatch of 99.6% making it an airline with the least cancellations. BSE Code 500285
Bloomberg Code SJET:IN
No. of Shares (Mn) 241.4
SpiceJet has recently been approved to fly international routes and will become the Sensex/Nifty 17711/5303
PRICE DATA
third Indian private airline after Jet Airways and Kingfisher to do so. It has a market
CMP Rs (29th Mar '10) 57.55
cap of Rs. 1439.26mn and has a market share of ~13% as of December 2009 as Beta 0.92
Market Cap (Rs mn) 1439.26
against 9% in May 2009.
52 Week High-Low 64.40/12.90
2 Week Avg Volume (Lakhs) 38.82
Based on a P/E multiple of 9, the fair value for SpiceJet works out to Rs 76. STOCK RETURN (%)
Business Performance 30D 3M 6M 1Y
April
April 6, 2009
2009
SpiceJet Ltd. 3.4% 2.3% 73.9%9,6,
Jan 2010
326.0%
Financial Snapshot
Sensex 7.8% 2.0% 6.1% 77.1%
Projections (Rs mn) FY08A FY09A FY10E FY11E FY12E Nifty 7.7%December
2.4% 12,
6.9% 2008
72.0%
Net Revenues 12949.9 16894.5 22516.2 26295.8 30295.6 SHARE HOLDER PATTERN (%)
Promoter 12.9%
Y-o-Y Growth (%) 101.1 30.5 33.3 16.8 15.2
Institution 22.2%
EBITDA -1084.2 -3138.5 1477.5 3290.6 3454.6 Non Institution 64.9%
Y-o-Y Growth (%) 92.6 189.5 -147.1 122.7 5.0 Total 100.0%
1 Year Price Performance (Rel. to Sensex)
Profit After Tax -1323.9 -3404.4 1329.5 3129.3 3279.0
SpiceJet Sensex
Y-o-Y Growth (%) 49.1 61.1 -139.1 135.4 4.6
400%
Fully Diluted EPS Rs -3.4 -8.8 3.4 8.1 8.4 350%

BV PS Rs 0.7 -11.1 -7.6 9.9 18.3 300%

250%
EBITDA Margin (%) -8.4 -18.6 6.6 12.5 11.4 200%
PAT Margin (%) -10.2 -20.2 5.9 11.9 10.8 150%
100%
ROE (%) - - - 81.4 46.0 50%
PER x -17.0 -6.6 16.9 7.2 6.8 0%
Dec-09
Oct-09
Aug-09
Apr-09

Nov-09

Jan-10
May-09

Sep-09

Feb-10
Jun-09
Jul-09
Mar-09

-50%
P/B Ratio 80.3 -5.2 -7.6 5.8 3.2

Disclaimer: This document is compiled by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished
to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written
consent from FSWA. The information provided in the document is on a "best effort" basis and is subject to change depending on several factors, including general
market conditions. While reasonable care has been taken to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any
other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can
change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own
investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of
this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you
should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The
investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates,
or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made
by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the
terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with
or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. FSWA
does not carry out any proprietary trading. Hence, FSWA does not have any position in the scrips mentioned in the document.
 [Type text] [Type text] [Type text]

BUSINESS MODEL

SpiceJet operates a single fleet type which lowers maintenance and training costs. The result SpiceJet’s business model
of this is a reduction of costs by ~20% per seat. includes features such as –
single fleet type, direct
distribution policy, and high
Furthermore, SpiceJet has adopted a direct distribution policy through call centers and
aircraft utilization.
internet. This avoids booking through travel agents and their advanced payment mechanism
reduces working capital burden. Distribution costs are reduced by ~10% of revenue.

SpiceJet has one of the highest aircraft utilization rates at 12 hours per day, whiles its peers
range around 7-11 hours. This allows SpiceJet to operate one additional flight a day. Also,
faster check-ins and quick turnaround reduce fixed costs by 15-20%

BUSINESS PERFORMANCE

Costs
SpiceJet has managed to keep its costs under control with 3QFY10 costs declining to Lower turnaround time, higher
Rs. 2.36/ASKM. This is a result of lower turnaround time, higher automation of automation of processes and
processes, higher utilization etc. Furthermore, ATF prices which had peaked in August higher utilization has enabled
2008 (Rs. 73.5 per litre for Mumbai) have falling considerably since then. We expect SpiceJet to bring its costs
crude oil prices to trade in the range of $60-90 range and therefore it is likely that costs down to Rs. 2.36/ASKM.
will continue to be on the lower side.

Occupancy
3QFY10 saw a steep rise in occupancy across carriers. SpiceJet finally broke past the SpiceJet’s load factor has been
70-75% levels and recorded an 80% occupancy rate. Moreover in the month of Jan & consistently higher than those
Feb 2010 load factor has gone up despite the fact that the fourth quarter is a of full service carriers.
seasonally weak quarter characterized by low load factor. This is largely on account of
Crompton’s discount with
sharp rebound in passenger traffic coupled with capacity rationalization. We have
peers to narrow as the
assumed occupancy levels between 75-80% over FY11-FY12 as we expect capacity
company would
SpiceJet report EBITDA
registered higher
addition in 2HFY2011. SpiceJet’s load factor has been consistently higher than those
marginsof
margins & RoE
17.53% in Q3FY10,
of full service carriers.
up from Q3FY09s margin of
2.37%.
Margins
SpiceJet registered EBITDA margins of 17.53% in Q3FY10, up from Q3FY09s margin
of 2.37%. The improvement in margins is a result of controlled costs, lower fuel prices,
and improving occupancy rates.

Disclaimer: This document is compiled by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished
to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written
consent from FSWA. The information provided in the document is on a "best effort" basis and is subject to change depending on several factors, including general
market conditions. While reasonable care has been taken to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any
other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can
change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own
investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of
this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you
should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The
investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates,
or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made
by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the
terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with
or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. FSWA
does not carry out any proprietary trading. Hence, FSWA does not have any position in the scrips mentioned in the document.
 [Type text] [Type text] [Type text]

Other statistics
SpiceJet’s market share is
ASKMs have improved from 1.5bn in 2Q09 to 2.3bn in 3Q10. Departures have
currently at ~13%, a 5%
increased to 11680 in 3QFY10 from 2QFY09s 7527. Passengers carried increased
from 0.8mn in 2QFY09 to 1.8mn in 3QFY10. SpiceJet’s has been consistently
increase from 8% in FY08.
increasing its market share which is currently at ~13%, a 5% increase from 8% in
FY08.

Load factor
3.69
4.0 3.13
3.5 2.90
80% 2.60 2.36
3.0 2.15 2.31
2.5
60% 2.0
1.5
80%
70% 72% 76% 75% 1.0
66%
40% 56% 0.5
Q1 Q2 Q3 Q4 Q1 Q2 Q3
20% FY09 FY09 FY09 FY09 FY10 FY10 FY10
Q1 Q2 Q3 Q4 Q1 Q2 Q3
FY09 FY09 FY09 FY09 FY10 FY10 FY10 Rs. cost ASKM

35000 14%
Annual Revenue & Margins 7000
Quarterly Performance 20%
30000 12% 6000 15%
10%
25000 10%
Revenue s (Rs mn)

Revenue s (Rs mn)

5000
5%
Margins (%)

Margins (%)
20000 8% 4000 0%
15000 6% 3000 -5%
-10%
10000 4% 2000
-15%
5000 2% 1000 -20%
0 0% 0 -25%
FY2008 FY2009 FY2010E FY2011E FY2012E Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10

Revenues (Rs mn) PAT Margin (%) Revenues (Rs mn) PAT Margin (%) EBITDA Margin (%)

Disclaimer: This document is compiled by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished
to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written
consent from FSWA. The information provided in the document is on a "best effort" basis and is subject to change depending on several factors, including general
market conditions. While reasonable care has been taken to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any
other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can
change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own
investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of
this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you
should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The
investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates,
or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made
by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the
terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with
or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. FSWA
does not carry out any proprietary trading. Hence, FSWA does not have any position in the scrips mentioned in the document.
 [Type text] [Type text] [Type text]

INDUSTRY OUTLOOK

India is one of the fastest growing economies in the world. As India’s GDP grows there will Since aviation is an important
be an ongoing effort to strengthen the country’s infrastructure as well. Since aviation is an part of national infrastructure
the scope for aviation
important part of national infrastructure we believe that the scope for aviation infrastructure infrastructure development is
development is large. Furthermore, the rising per capita income will provided a boost to large.
demand for airlines.

Low Cost Carriers to Expand Market Share

In 2003 there were only 4 airline carriers, all of which operated full service models.
Today there is a shift in demand towards low cost carriers (LCC). Today there are 11
Over the past few quarters,
different brands of airlines. Some of the LCCs among these brands include Air India
more than 50% of aircraft
Express, Jet Konnect, Kingfisher Red, Indigo, SpiceJet, Go Air etc. Over the past few passengers have travelled on
quarters, more than 50% of aircraft passengers have travelled on LCCs rather than full LCCs rather than full service
carriers.
service carriers. We believe that this trend will continue into the near future and aircraft
passengers travelling on LCCs likely to reach the 70% mark. Full service carriers have
begun to adopt this model as well with Jet Airways’ launching their LCC Jet Konnect
and Kingfisher Airlines increasing their focus on its LCC business and rebranding it as
Kingfisher Red.

Passenger Traffic

Domestic PAX is expected to grow on the back of strong growth drivers such as rapidly
Domestic PAX is expected to
developing aviation infrastructure, growth in the broader economy and favourable grow on the back of strong
regulatory environment. Also, increase in urbanization and income levels will result in a growth drivers such as rapidly
large number of travelers demanding low fares to travel by air, thereby maintaining
developing aviation
infrastructure, growth in the
load factors on the higher side. Passengers carried by domestic airlines from Jan-Feb, broader economy and
2010 were 80.56 lakhs as against 67.61 lakhs in the corresponding period of year 2009 favourable regulatory
environment.
thereby registering a growth of + 19.2%. Furthermore, high end rail travelers will also
look to travel by air as long as fares remain low.

Disclaimer: This document is compiled by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished
to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written
consent from FSWA. The information provided in the document is on a "best effort" basis and is subject to change depending on several factors, including general
market conditions. While reasonable care has been taken to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any
other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can
change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own
investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of
this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you
should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The
investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates,
or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made
by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the
terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with
or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. FSWA
does not carry out any proprietary trading. Hence, FSWA does not have any position in the scrips mentioned in the document.
 [Type text] [Type text] [Type text]

VALUATIONS

SpiceJet is a listed Indian airline company which is the first to witness turnaround due to
lower costs, increased passenger traffic and higher yields. We expect the sales to grow at a On a P/E basis, the fair value
CAGR of 21% over FY09-FY12E primarily on the basis of the launch of SpiceJet’s for SpiceJet works out to Rs
76 (9x FY12E earnings of Rs.
international operations (starting with Kathmandu, Colombo and Dhaka). We expect the
8.4)
company to post an EPS of Rs. 3.4 in FY10E and Rs. 8.1 in FY11E. At the CMP (Rs. 57.55),
the stock trades at 16x its FY10E earnings and 7x its FY11E earnings (We have assumed
equity dilution due to the maturity of FCCB in 2010). On a P/E basis, the fair value for
SpiceJet works out to Rs 76 (9x FY12E of Rs. 8.4)

We recommend a ‘BUY’ with a price target of Rs. 76.

Financial Analysis and Projection Quartely Financials

Particulars (Rs m n) FY2008 FY2009 FY2010E FY2011E FY2012E Particulars (Rs m n) 9MFY09 9MFY10 Q3FY09 Q3FY10
Revenue 12949.9 16894.5 22516.2 26295.8 30295.6 Revenue 12697.2 16159.3 4723.5 6420.9
Other Income 1435.9 1240.9 471.6 495.2 519.9 Other Income 778.4 371.6 556.6 113.0
Total Income 14385.8 18135.4 22987.8 26790.9 30815.6 Total Income 13475.6 16530.9 5280.1 6533.9
Expenditure 15470.0 21273.9 21510.4 23500.4 27361.0 Expenditure 16512.7 16082.8 5168.2 5408.1
EBITDA -1084.2 -3138.5 1477.5 3290.6 3454.6 EBITDA -3037.0 448.1 111.9 1125.8
Interest 137.2 160.2 69.0 75.9 83.5 Interest 135.1 49.6 71.2 16.9
PBDT -1221.4 -3298.7 1408.5 3214.7 3371.1 PBDT -3176.2 397.7 37.6 1108.9
Depreciation 78.2 72.5 79.0 85.3 92.1 Depreciation 57.3 57.7 18.1 19.4
PBT -1299.6 -3371.3 1329.5 3129.3 3279.0 PBT -3233.5 340.0 19.5 1089.5
Less: Tax 24.2 33.2 0.0 0.0 0.0 Less: Tax 26.1 0.0 11.3 0.0
Profit After Tax -1323.9 -3404.4 1329.5 3129.3 3279.0 Profit After Tax -3259.6 340.0 8.2 1089.5
PAT Margin (%) -10.2 -20.2 5.9 11.9 10.8 PAT Margin (%) - 0.0 0.0 0.2
EBITDA Margin (%) -8.4 -18.6 6.6 12.5 11.4 EBITDA Margin (%) - 0.0 0.0 0.2
ROE (%) - - - 81.4 46.0 EPS Rs - 1.4 0.0 2.6
Fully Diluted EPS Rs -3.4 -8.8 3.4 8.1 8.4
B/V 0.7 -11.1 -7.6 9.9 18.3
PERx -17.0 -6.6 16.9 7.2 6.8
P/B Ratio 80.3 -5.2 -7.6 5.8 3.2

Disclaimer: This document is compiled by Fullerton Securities & Wealth Advisors Ltd (FSWA). This document is not for public distribution and has been furnished
to you solely for your information and you are notified that you should not further copy, modify, use or distribute the information in any way unless you obtain written
consent from FSWA. The information provided in the document is on a "best effort" basis and is subject to change depending on several factors, including general
market conditions. While reasonable care has been taken to compile the document but the accuracy and completeness cannot be guaranteed either by FSWA or any
other person or entity associated with it. The returns shown are merely estimates and forecasts and are not necessarily indicative of future performance and can
change without notice. The document is prepared only for your information and is not sufficient for making an investment decision. You should rely on your own
investigations and seek professional advice for investment decision. Neither FSWA nor any person connected with it, accepts any liability either arising from the use of
this document or due to any inadvertent error in the information contained in this document. Financial investments carry risks including principal risk and therefore you
should seek professional advice prior to making any investment decision. The risk of any losses occurring by use of this report or document will be entirely yours. The
investments covered in this report are not guaranteed. Also past performance of an investment or fund is not an indication of future performance. FSWA, its affiliates,
or associates, or any regulatory or other body or entity assumes no liability or responsibility for investment results or losses arising out of investment decisions made
by you. This document is not to be considered as an offer to sell or a solicitation to buy any security or financial product. FSWA reserves the right to modify or alter the
terms and conditions of the use of this service or discontinue, temporarily or permanently, the information and services provided (or any part thereof) at any time, with
or without prior notice and FSWA shall not be liable to you for any suspension, modification, or termination of the information and services provided herein. FSWA
does not carry out any proprietary trading. Hence, FSWA does not have any position in the scrips mentioned in the document.