SpiceJet’s Q4 was turbulent and outlook remains cloudy

SpiceJet Ltd’s March quarter results had all the signs of turbulence airlines are facing due to covid. The company’s reported standalone net loss of ₹235 crore is more than what analysts expected. For perspective: Centrum Broking Ltd had predicted the budget airline’s March quarter loss at ₹140 crore.

The pandemic’s adverse impact on demand meant SpiceJet’s revenue fell almost 35% year-on-year to ₹1877 crore. Note that profitability for the March quarter got immense support from the sharp jump in other income, which increased 64% year-on-year to ₹317 crore. Other income includes compensation of ₹141 crore for the grounded Boeing 737 Max aircraft and ₹68 crore of rental concession booked.

Meanwhile, at the end of FY21, SpiceJet had consolidated cash (including bank balances) worth around ₹35.5 crore and its negative networth stood at ₹2,600 crore. In short, the balance sheet is delicate.

To cope with these trying times, SpiceJet’s plans to raise funds up to ₹2,500 crore through a qualified institutional placement. Note that SpiceJet’s latest market capitalization is around ₹4,800 crore. This means that if the airline raises fresh equity for the entire ₹2500 crore at the current prices, it would entail significant dilution.

Further, SpiceJet also said that in order to increase focus on the cargo segment and raise additional capital, it will hive-off the cargo business as a separate entity. Note that the performance of cargo business has been strong with FY21 revenues and net profit at around ₹1,120 crore and ₹131 crore, respectively. In FY20, the cargo business net loss stood at ₹134 crore.

Separately, the compensation from Boeing for grounded Max planes in FY21 and FY20 stands at ₹560 crore and ₹672 crore, respectively. Going ahead, investors will watch how the fundraising shapes up and the timelines for receiving the Boeing compensation.

In the near-term though, the June quarter results are expected to be a washout given the second covid wave. Also, fuel costs are high and this is generally detrimental for all airlines. Note that SpiceJet’s absolute fuel costs in the March quarter rose 56% versus the December quarter.

In the foreseeable future, demand is expected to stay muted due to the coronavirus pandemic. As such, it could be a while before air passenger traffic reaches pre-covid levels. To be sure, investors have taken note of the troubles. As things stand, shares of SpiceJet are more than 30% lower than their pre-covid highs seen in January 2020.