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Saturday, 25 March 2017

With improved performance SpiceJet pips Jet Airways in market cap - 25 Mar 2017

On the back of consistent profit and solid operational performance, SpiceJet has overtaken Jet Airways to become the second most valuable airline stock. 

SpiceJet has reported profit for eight consecutive quarters (Q), over 90 per cent load factor for 23 consecutive months and the best on-time performance among all airlines for five months in a row.

SpiceJet, which came back from the brink of closure in early 2015, had a market capitalisation of Rs 5,646 crore at the close of trading on Friday. 

Jet Airways market capitalisation stood at Rs 5,594 crore. IndiGo, India's largest and most profitable airline, is valued at Rs 36,886 crore.

After taking over SpiceJet's reins in February 2015 from Sun TV promoter Kalanithi Maran, airline's co-founder Ajay Singh has scripted a turnaround story. The first part of his strategy involved clearing all statutory payments, salary arrears and payments to lessors. Thus, the airline, which was forced to surrender its planes on defaulting rent towards the end of 2014, was able to win the confidence of lessors and other creditors. Singh also ensured costs were kept under control and renegotiated several contracts to lower expenditure. 

The second part was winning customer confidence through service improvement and aggressive sales and marketing campaigns. Its market share grew to 12 per cent in December 2016 from 10 per cent at the start of the year. In February, its market share rose further to 13.1 per cent.   

Investors too have rewarded SpiceJet stock for its improved performance. On a year-to-date basis (since January 1), SpiceJet stock has risen 59 per cent against 41.5 per cent rise in Jet Airways stock. However, Jet Airways stock has declined 10.7 per cent on a year-on-year basis (March 24, 2017, over March 24, 2016) while SpiceJet stock has risen 46.35 per cent during the same period.

While Jet Airways too has turned profitable and turned around its operations earlier than the target, the airline stock is underperforming in comparison to SpiceJet because of higher debt and higher cost.

"Jet Airways has non-aircraft debt of around Rs 6,000 crore and an adverse cost structure in comparison to the other listed airlines. Also Jet is not making any incremental capacity addition and is losing market share at the time when the traffic is growing at over 20 per cent," an aviation analyst observed.

"Afer experiencing a near death scenario SpiceJet's turnaround is miraculous. Importantly, despite being one-third of the size of the market leader, the company holds the leadership position in key operating metrics such as yield and on time performance. Yield is about 10 per cent higher backed by higher capacity deployment on fast growing non-metro routes, superior route planning on international routes. SpiceJet's industry leading on-time performance is likely to help it target higher yielding business passengers," SBICAP Securities analyst Santosh Hiredesai wrote in an investor note on Thursday.

Other brokerages too have a favourable rating on the SpiceJet stock. "Industry high load factors, cost rationalisation coupled with lower air turbine fuel prices have helped turn around the loss-making airline. SpiceJet's strong regional presence places it favourably to avail benefits of the regional connectivity scheme," J M Financial Research said in its note post Q3 results last month.

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