SpiceJet share price is down over 4% despite the company returning back to black and reporting Q3 net profit of Rs 26 crore. In fact, the brokerage house Nuvama Institutional Equities cut the target price on SpiceJet by 14% to Rs 52 while maintaining its ‘Hold’ rating on the stock. It has also cut the FY25 earnings per share estimates by 14% and for FY26 by 13%.
Here are three reasons why Nuvama has taken a cautious approach-
Nuvama on SpiceJet: Non-transparency in sharing data
Not just EPS and target price, it slashed the enterprise value multiple to 7x from 9x. All the wrath of Nuvama came on SpiceJet due to lack of transparency in sharing key operational data, which remains a concern. Added to that, the available seat kilometers (ASKM), a key metric used in aviation to measure an airline’s passenger-carrying capacity, crashed 41% year-on-year in the third quarter of FY25. Also, the rate of aircraft on ground (AoG) raised by 30% in Q2.
Nuvama sees gradual recovery
Moving forward, the brokerage firm said that the aviation major’s qualitative institutional placement (QIP) of Rs 3,000 crore will allow for repayment of remaining dues, helping in induction of AoG. So, it’s a good sign, but it sees a slow recovery. “SpiceJet’s operations are set to improve as it has started to induct grounded fleet by settling with its lessors for outstanding dues,” said Nuvama in a research note.
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SpiceJet’s Q2 FY25 EBITDAR came at Rs 230 crore, improved YoY from Rs 370 crore primarily on lower opex, which fell 42% as fixed cost reduction on increase in AoG outweighed revenue loss.
The company’s cost per available seat kilometer (CASK) fell 8% YoY to Rs 5.4/km, primarily on reduction in other expenses partly offset by negative operating leverage.
Economic slowdown may hurt earnings
Nuvama raised concerns over the economic slowdown, which exerted pressure on demand for corporate and leisure travel. Failure to maintain occupancy at 90%-plus or any demand weakness would pressure RASK and, hence, pose a risk to earnings and valuations of SpiceJet.
SpiceJet’s performance in Q3
For the first time in a decade, the company swung to black. The profit for Q3 stood at Rs 26 crore compared to a loss of Rs 300 crore in the same period a year ago.
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