SpiceJet up 20% in 3 months despite analysts' skepticism; should you buy?

SpiceJet news: So far this calendar year, shares of SpiceJet have fallen 20 per cent, while they have tumbled 33.16 per cent over the last one year

Shares of SpiceJet have outperformed the markets over the past three months as investors checked into the counter on the back of fund raise expectations and a solid profit in the April-June quarter (Q1-FY24).

While the shares of the low-cost airline have zoomed 20 per cent during the period, the benchmark S&P BSE Sensex has added barely 3.5 per cent, and peer firm IndiGo has gained 2.4 per cent over the last three months.

Analysts, however, advise new investors to stay away from the counter for now.

 

"SpiceJet faces intense competition and constrained cash flows. Moreover, we believe its Rs 200-crore net profit in Q1-FY24 could have stemmed from the reduction in flight operations, and therefore, does not accurately reflect the company's true financial health. New investors should refrain from making hasty investment decisions," said Akhil Bhardwaj, senior partner at Alpha Capital, who believes the airline's strongest quarterly profit in four years raises more concerns than comfort.

On August 14, the budget carrier reported a standalone net profit of Rs 204.5 crore for the quarter ending June 2023 as against a loss of Rs 789 crore reported in Q1-FY23. Its Ebitda gain was Rs 525 crore for the quarter versus a loss of Rs 393 crore last year.

Revenue from operation, however, decreased to Rs 2,002 crore from Rs 2,457 crore year-on-year (YoY) with operating expenses falling to Rs 1,291 crore as against Rs 2,072 crore YoY.

As of FY23, the airline’s current lease liabilities were Rs 3,318.9 crore, up from Rs 2,918.5 crore at the end of FY22. The non-current lease liabilities, meanwhile, reduced to Rs 2,844 crore from Rs 4,332.3 crore during the period.

SpiceJet's total liabilities, excluding lessor payments, were Rs 13,143.35 crore as against Rs 13,621.21 crore QoQ and Rs 14,941 crore YoY.

Four lessors --  Aircastle, Wilmington, Celestial, and Willis Lease Finance -- have filed insolvency pleas against SpiceJet. That apart, the airline has sought shareholders’ approval to issue 5.91 per cent stake to leasing firm Carlyle Aviation Partners which has the largest exposure among other lessors, and will convert its dues of over $28 million to equity.

"The recent quarterly performance looks reassuring on the face of it. But a deeper dive into them reveals chinks in the armour. SpiceJet needs an operational turnaround as there are risks from the debts owed to lessors," said Nirav Karkera, head of research, Fisdom.

'Struggling to stay afloat'

On its part, the airline told the Delhi High Court last week that it was struggling to stay afloat, when it was ordered to pay Rs 100 crore ($12 million) to former promoter Kalanithi Maran by September 10.

Separately, the Supreme Court has also asked SpiceJet's Managing Director Ajay Singh to defend allegations by Credit Suisse claiming certain unpaid dues of $24 million.

"The way these lawsuits are progressing, they do not seem to be favouring the airline at all. The odds seem to be stacked against SpiceJet," added Nirav Karkera of Fisdom.

That said, Ajay Singh is expected to infuse Rs 500 crore into the company.

Investment strategy

Against this, Karkera of Fisdom suggests investors stay on the sidelines till a clearer picture emerges.

Those holding the stock, however, may continue to do so, suggests Vinit Bolinjkar, head of research at Ventura Securities, as India's travel and tourism sector is expanding with airlines adding new routes regularly. The industry tailwinds, he believes, may support the stock in the near-term.

So far this calendar year, shares of SpiceJet have fallen 20 per cent, while they have tumbled 33.16 per cent over the last one year. By comparison, the benchmark Sensex index has added 6.6 per cent YTD and 8.8 per cent in one year, ACE Equity data shows.

 

As per technical charts, SpiceJet stock is testing the 20-day moving average of Rs 31.53 on the daily charts with the next resistances at 50-DMA of Rs 34, and 100-DMA of Rs 36.

While the moving averages have made negative crossovers, momentum oscillators are trending upwards, suggesting cautious optimism at the counter.