Low-cost carrier SpiceJet Ltd’s results for the quarter ending March 2011 were disappointing, with the company posting a net loss of Rs 59 crore against a net profit of Rs 27 crore in the same period last year. That comes on the back of strong revenue growth of 32% to around Rs 760 crore.
The performance of the company was hit hard mainly on account of a sharp spike in fuel costs, which is not surprising.
The company also maintained that the pricing environment was challenging in the March quarter.
In general, analysts were anticipating a weak March quarter for aviation companies, thanks to higher fuel costs, and the fact that the fourth quarter of the fiscal typically tends to be the slowest for the sector.
But having said that, analysts were expecting SpiceJet to do better than what it has reported.
Fuel costs accounted for 52% of the company’s revenue during the quarter, compared with 37% in the March 2010 quarter.
Other costs, including airport charges, aircraft maintenance and staff costs, too, increased at a faster pace.
Accordingly, SpiceJet’s Ebitdar (earnings before interest, tax, depreciation, amortization and aircraft lease rentals) margin fell sharply to 6.5% from as high as 20.8% in the same period last year.
At the operating level, SpiceJet posted losses against a profit last year.
If it offers any consolation to investors, the other two listed companies in the space, Jet Airways (India) Ltd and Kingfisher Airlines Ltd, too, posted losses at the net level.
The net loss of Kingfisher and Jet Airways for the March quarter stood at Rs 355 crore and Rs 124 crore, respectively.
For the entire year, the performance of all the three companies has improved.
Jet reported standalone net profit against a net loss last year, while Kingfisher’s net losses have reduced considerably during the same period.
Jet and Kingfisher both have high debt on their books which results in high interest expenses, impacting profitability.
On the other hand, SpiceJet’s net profit increased by 65% to Rs 101 crore in fiscal 2011 helped by a strong performance in the December quarter, and relatively lower interest cost outgo.
It’s well known that higher crude prices have taken a toll on aviation stocks, and the three stocks have corrected in the range of 53-58% from their highs in November.
That does make valuations look attractive.
SpiceJet expects 14-16% growth in domestic demand in fiscal 2012, as stated in the results statement. While that augurs well, fuel costs are still high, and that is likely to cap upsides in the near term.
Of all the three companies, SpiceJet appears to be a safer bet, thanks to its comparatively strong balance sheet.
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