Stock Review: SpiceJet

The  times when the industry is not doing well can be seen as opportunities to buy the stock because you get the stock cheap. This is a company which has; the stock has dropped by 50% over the last seven- eight months. It is consolidating in the range of about Rs 38-45 for the past three-four months.

If you see the Q4 performance of SpiceJet this company has reported a loss of about Rs 60 crore. In spite of the loss of Rs 60 crore in Q4 the company has ended the full year with a profit after tax of about Rs 100 crore. The loss in the last quarter is primarily on account of higher ATF prices.

Looking at the business model of SpiceJet vis-à-vis the other listed aviation stocks, this is a company which follows asset like model, which means that it doesn't own aircrafts but leases them. This essentially means that the capital which the company requires for business is less which is evident from the debt in the balance sheet.

Companies like Jet Airways and Kingfisher Airlines debt to the tune of about Rs 8,000 crore to Rs 14,000 crore. In comparison to that SpiceJet has debt of just about Rs 400 crore, which is negligible when compared with other aviation stocks.

If you see the full year performance of other airlines stocks Jet recorded a profit after tax of about Rs 10 crore, Kingfisher posted a loss of about Rs 1,000 crore for FY11 whereas Spicejet made a profit after tax of about Rs 100 crore. So, the financial position of SpiceJet vis-à-vis the other listed airline stocks is substantially better.

The company has been on growth path, it has aggressive plans to expand aggressively into tier two and tier three cities where it sees good growth potential. It has plans to increase the number of aircrafts from 30 to about 70 in the next three years.

Most airline companies have been increasing their fares slightly to offset the cost of higher ATF prices but given the trade-off between higher fares and the load factors, the entire cost has not been passed on to the customer but the volume growth has been good.

As the ATF prices and the oil prices stabilise these companies will benefit. But, bad times can be seen as opportunities to buy these stock and SpiceJet looks to be the best out of the lot of aviation stocks to outperform in a good environment.