>SPICE JET (KARVY)

During 2QFY10E, SpiceJet is expected to report significant improvement over 2QFY09 results. For the aviation industry, July - September period is relatively a lean season as compared to the remaining three quarters. Accordingly, we expect SpiceJet to report net loss of Rs271mn for the
quarter under review but a considerable improvement over 2QFY09 net loss of Rs1,975mn.

We expect SpiceJet to report revenues of Rs4,834mn during 2QFY10E, a YoY growth of 42% over 2QFY09 revenues of Rs3,402mn. Revenues are expected to grow on account of 48% expected rise in departures and expected sharp improvement in load factors from 55.6% during 2QFY09 to 74.1% for the quarter under review. Sharp up-tick in load factors is primarily due to recovery in the domestic passenger traffic coupled with 32% expected fall in average fares on YoY basis. During 2QFY09 average fares for SpiceJet was Rs3,982 and the same is expected to drastically come down to Rs2,689 during 2QFY10E on back of fall in ATF prices. We expect average fuel cost for the quarter to be at Rs34 per liter as against ATF price of Rs64 per liter prevailing during corresponding quarter previous year.

We therefore expect SpiceJet to report negative EBITDA of Rs382mn during 2QFY10E as against negative EBITDA of Rs2,147mn reported during 2QFY09. Accordingly we expect the company's net loss for the quarter to come down from Rs1,975mn to Rs271mn on YoY basis. On back of improving traffic scenario and stable oil prices, we are revising our FY10E estimates. We are revising our sales estimates upwards by 25% from Rs16,130mn to Rs20,106mn and our net profit estimates upward by 10% from Rs833mn to Rs917mn.

Furthermore we are introducing FY11E numbers in our estimates. SpiceJet would complete 5 years of domestic flying by May 2010 and hence would be eligible to fly on international routes. SpiceJet would be adding 4 aircrafts each during CY2010 and CY2011 and 1 aircraft in CY2012 which we believe would be used primarily on international routes. In our FY11E estimates we have assumed load factor of 72.4%, average fares of Rs3,173 and ATF price of Rs40 per liter. Accordingly for FY11E we expect the company to generate revenues of Rs24,104mn, EBITDA of Rs1,115mn and net profit of Rs1,416mn translating into an EPS of Rs3.6. We are increasing our target price from Rs16 to Rs43 on account of increase in PE multiple and rolling over our valuation from FY10E to FY11E. We are increasing our PE multiple from 8x to 12x on account of improving domestic passenger traffic demand, stable oil prices and company's eligibility to fly on international routes from May2010 onwards. At the CMP of Rs35 we rate the stock as an Outperformer.

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