SpiceJet BUY. Flying into Clear Skies. Target Price. Initiating Coverage Airlines. Investment Period 12 Months. Key Financials

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1 Initiating Coverage Airlines May 3, 21 SpiceJet Flying into Clear Skies SpiceJet is one of the fastest growing airlines in the aviation industry, with a market share of around 12%. Given its strong expansion plans, revival in the economy and strong passenger growth, we have assigned a target multiple of 9x FY212E EPS of Rs9.3 to arrive at a target price of Rs84, implying an upside of 33%. Hence, we Initiate Coverage on the stock with a Buy recommendation. Load factors expected to remain healthy: Driven by huge losses, most airlines reduced fleets and no new capacities were added since FY29. With FCCs like Air India and Kingfisher still making huge losses, and Jet Airways barely breaking even, we expect negligible fleet additions over FY21-11E. But demand has bounced back sharply in 9MFY21 and Low-Cost Carriers (LCCs) have been reporting 8%+ load factors. Given that the demand is expected to outpace supply, the load factors are expected to remain around 77% for FY211E. Higher Load Factor to increase Profitability: With the Aviation industry characterised by very high operating leverage, an improvement in the load factor is expected to drive a substantial spurt in Profits. With 8% (66% in 3QFY29) load factors, SpiceJet's Net Profit shot up to Rs19cr in 3QFY21 vs. Rs43cr loss in 3QFY29. Additionally, aided by a strong fleet addition (19% CAGR over FY21-12E), we expect SpiceJet's Net Profit to grow at a 51% CAGR to Rs377cr in FY212E. Increasing fleet and strengthening Balance Sheet: SpiceJet is expected to build a strong cash reserve of Rs874cr as on FY211E and of Rs1,311cr by FY212E. In a worst-case scenario, even if SpiceJet witnesses a load factor of just 5% (lowest load factor till date of 67% in FY29), it would have enough cash to sustain its operational expenditure for 14 months, without diluting any equity. With US $79.8mn FCCBs getting converted by December 21 and ~Rs35cr of QIP (not factored), Balance Sheet strength will go up further, with a Net Worth of Rs989.4cr in FY212E. Key Financials Y/E March (Rs cr) FY29 FY21E FY211E FY212E Net Sales 1,689 2,26 2,687 3,158 % chg Net Profit (352.6) % chg (147.) FDEPS (Rs) (14.6) EBITDA Margin (%) (24.8) P/E (x) (4.3) P/CEPS (x) (4.4) RoE (%) (47.8) RoCE (%) (135.9) P/BV (x) (3.5) (5.7) EV/Sales (x) EV/EBITDA (x) (4.) BUY CMP Rs62 Target Price Rs84 Investment Period 12 Months Stock Info Sector Airlines Market Cap (Rs cr) 1,55 Beta.9 52 Week High / Low 65/14 Avg. Daily Volume Face Value (Rs) 1 BSE Sensex 17,559 Nifty 5,278 Reuters Code SPJT.BO Bloomberg Code SJET@IN Shareholding Pattern (%) Promoters 12.9 MF / Banks / Indian FIs 34.9 FII / NRIs / OCBs 28. Indian Public / Others 24.2 Abs. (%) 3m 1yr 3yr Sensex SpiceJet Sharan Lillaney Ext: sharanb.lillaney@angeltrade.com Please refer to important disclosures at the end of this report

2 Investment Arguments Passenger traffic poised for strong growth Prior to the economic turmoil, the domestic aviation industry witnessed strong demand in passenger traffic, registering a CAGR of 18% over FY With the growing demand in passenger traffic, airline companies started ramping up their capacity (some by nearly 2 times) to meet the current and the future demand, which resulted in a huge increase in capacity in terms of Available Seat Kilometres (ASKM), which nearly doubled from 35,77mn in FY26 to 6,59mn in FY28). However, the Aviation sector was amongst the worst hit by the economic crisis in FY29, where demand in terms of passenger traffic declined by 11%, from 44.5mn in FY28 to 39.5mn in FY29, which was the biggest fall in a decade. Due to the huge capacity expansion in the last few years and the plummeting demand in FY29, almost all airlines suffered huge losses, which forced some companies to rationalise their capacity to cut down costs and to reduce future losses (Kingfisher rationalised its fleet from 88 to 66). Exhibit 1: Strong passenger growth to continue (1) (2) FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY21E FY211E FY212E (mn) (%) Passengers Carried (LHS) Growth (RHS) Source: DGCA, Angel Research The passenger traffic demand is expected to register a CAGR GR of around 13% over FY21E-FY212E -FY212E. However, demand has bounced back significantly over the last 9MFY21 and is expected to grow by 13% for the whole FY21E. Historically, economic growth has been the primary driver of air traffic and this relationship has been even more evident in developing countries. It has been observed that aviation grows at the rate of 1.2 to 1.8 times the GDP (1.2 times in developed nations and 1.8 times in developing countries with pent-up demand). Assuming an annual GDP growth of ~8% and a 1.5 times multiple, it is estimated that domestic aviation traffic alone will grow around by 12-13% annually, or by 2.5 times, from the current 4mn passengers to 1mn passengers by 22. Given that the demand has historically grown at an average of around a 13.7% CAGR over the last ten years, we expect this trend to continue, with an expected GDP of 8-9% YoY for the next three years; thus, we expect the passenger traffic demand to register CAGR of around 13% over FY21E-FY212E. In absolute terms, we expect the passenger traffic to be around 44.6mn FY21E and 56.6mn in FY212E. May 3, 21 2

3 Low penetration of air traffic in India Exhibit 2: India to experience highest domestic growth (US $) 5, 45, 4, 35, 3, 25, 2, 15, 1, 5, (%) India Source: IMF, Airbus China Brazil RSA Real GDP per capita (29) Russia Aus/NZ Cen. Eur. West.Eur. U.S 2 years annual domestic growth forecast The long term demand is expected to remain high due to the low penetration of air traffic in India The long term demand is expected to remain high due to the low penetration of air traffic in India. It is estimated that only 43 travellers per 1, travel by air, which is 12 times lower when compared to the USA (52/1,), and nearly 5 times lower than China (215/1,). According to research done by IATA PaxIS, Global Insight and Airbus, it was noted that air trips per capita increases exponentially when the Real GDP Per Capita level rises above the US $1 level, and until the US $1, level. After the US $1, level, the growth tends to slow down considerably, which can be seen in the case of all developed nations. Currently, India's Real GDP per capita is at US $1,32, and is expected to grow by around 12-14% annually. This implies that the Indian aviation sector as a whole is going to experience enormous growth over the next 15-2 years. Airbus expects the sector to register a 1% CAGR over the next 2 years. Exhibit 3: Large potential to increase propensity to travel Trips per capita Bahamas Passenger originating from a particular country (per ) Maldives Mauritius Panama Samoa Russia Brazil China Bosnia India Nigeria Iraq Niger Barbados Bahrain Trinidad Saudi Arabia Portugal Mexico South Korea Poland Slovenia World average New Zealand UAE Hong Kong Australia Greece Kuwait UK Italy Germany USA Netherlands Ireland Switzerland.1 5, 1, 15, 2, 25, 3, 35, 4, 45, 5, 55, 28 Real GDP per Capita Source: IATA PaxIS, Global Insight, Airbus; Note:GDP in 25 US$ May 3, 21 3

4 Demand expected to outpace supply Exhbit 4: Low capacity addition No. of Aircrafts FY21E FY211E FY212E FY213E Indian Airlines Jet Airways Jet Lite Indigo Kingfisher SpiceJet Paramount GoAir Total yoy growth (%) The total Domestic fleet size to increase by only around 5% in FY211E and by around 8% in FY212E The major triggers for profitability for the whole aviation sector in FY211E and FY212E will be lower capacity additions, which will lead to greater demand when compared to supply, resulting in higher profitability due to increasing load factors. FY211E will see a major supply-demand gap being created, as demand is expected to increase by 13% while supply is expected to rise by only 5%. We expect the total Domestic fleet size to increase by around 5% in FY211E and by around 8% in FY212E. Prior to the economic downturn, huge orders were placed by Kingfisher, Indian Airlines and Jet airways, which have now been deferred by at least 18 months; thus, any major capacity expansion for these airlines will only come in after FY212E, which will give a strong boost to LCC players like SpiceJet to expand their market share and to maintain a high load factor. The major chunk of the growth in domestic fleet size in FY211E and FY212E will be added by the two LCCs, SpiceJet and IndiGo airlines, since these are the only companies that are going ahead with their orders and are expected to take delivery on time. May 3, 21 4

5 Strong Passenger growth to resume for SpiceJet Currently, LCCs are the preferred mode for domestic airline travellers as, being cost-efficient, they can provide cheaper tickets. This would benefit LCCs such as SpiceJet, which can offer significantly lower fares to attract more value-conscious passengers. In fact, there has been a considerable shift in passenger traffic towards LCCs, with more than 55% passengers preferring them. This has even led to Full-Cost Carriers (FCCs) like Jet and Kingfisher to convert part of their capacity to a no-frills, low-cost model. SpiceJet increased its market share by more than 5%, from 8% in FY28 to around 12% in FY29 SpiceJet is one of the fastest growing LCCs, and, given the change in preference from FCCs to LCCs, it is best placed to benefit from the economic recovery and the growing passenger traffic demand. Even when the Industry passenger traffic declined by 11% in FY29, SpiceJet increased the number of passengers carried, from 4.5mn to 4.59mn in FY29, due to its low-cost model. Moreover, the efficacy of the low-cost model was clearly noticeable, as Spicejet increased its market share by more than 5%, from 8% in FY28 to around 12% in FY29, with a corresponding increase of only 28% in fleet size in FY29. Exhibit 5: Domestic airlines market share Source: DGCA, Angel Research The company is expected to carry around 6.6mn passengers in FY21E (a growth of ~44%) We expect SpiceJet's passenger growth to continue at the previous levels of around 5% CAGR and which will be supported by its fleet expansion plans. We expect the company to carry around 6.6mn passengers in FY21E (a growth of ~44%), and expect this growth to continue to 7.9mn and 9.3mn passengers in FY211E and FY212E, respectively. May 3, 21 5

6 (%) SpiceJet Initiating Coverage Exhibit 6: SpiceJet to continue strong passenger growth FY7 FY8 FY9 FY1E FY11E FY12E Spicejet Pax Carried (LHS, mn) Domestic Pax Carried (LHS, mn) Domestic Growth (RHS, %) Spicejet Growth (RHS, %) 4 2 (2) Load Factors to improve due to lower capacity expansion The load factors are expected to remain high, as the demand is expected to outpace the supply With the demand coming back to normal after the economic recovery, and with only a few capacity additions (after the capacity rationalisation by FCCs in FY29), all LCCs have currently reported strong Load Factors of around 8%+. SpiceJet has reported load factors to the tune of 82% and 81% for the months of January and February, 21, respectively. Going forward, we expect the load factors to remain high, as the demand is expected to outpace the supply, with most companies (Jet Airways and Kingfisher) having deferred their orders, which will lead to a low growth rate in the ASKM and a higher growth in the RPKM (Revenue Performed Kilometres). We expect the domestic ASKM to remain constant for FY21E at 59,16mn, as hardly any new fleets have been added during the year; for FY212E, the ASKM is expected to be around 68,981mn. On the other hand, demand is expected to continue its robust growth; thus, the RPKM is expected to be around 42,66mn in FY21E and to increase to 54,43mn in FY212E. The overall domestic industry load factors are expected to be around 72% in FY21E, 77% in FY211E and 79% in FY212E. Exhibit 7: ASKM to grow at a slower rate for the industry 8, 7, 6, 5, 4, 3, 2, 1, Stagnant FY FY1 FY2 FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1E FY11E FY12E (km mn) Domestic ASKM (LHS) Domestic RPKM (LHS) Load Factor (RHS) Source: DGCA, Angel Research May 3, 21 6

7 (%) SpiceJet Initiating Coverage Exhibit 8: SpiceJet registering strong load factors Jan-9 Feb-9 Mar-9 Apr-9 May-9 Jun-9 Jul-9 Aug-9 Sep-9 Oct-9 Nov-9 Dec-9 Jan-1 Feb-1 Available Seat Kms(LHS, mn) KMS Performed(LHS, mn) Load Factor (RHS) Source: DGCA SpiceJet expected to outperform its peers We have conducted an analysis between the Financial Lease and the Operating Lease business models adopted by different airline companies, to find out which is best suited for the Indian aviation sector, and how the profitability of the companies is determined by the model that they adapt. Companies such as Kingfisher and Jet Airways, which use the financial lease mode where they own aircrafts, have shown weaker balance sheets, owing to a higher incidence of depreciation and interest costs, as compared to companies like SpiceJet, which follow the operating lease model, where, rather than buying the aircraft, they lease it for a fixed period of time. Full Cost Carriers v/s Low Cost Carriers - Jet Airways v/s SpiceJet SpiceJet is a no frills airline; thus, its ticket prices does not include any additional services, which helps the company reduce its average Pax yields. This is unlike Jet Airways, which provides food and beverage services, included in the cost of the ticket, and which results in higher Pax yields. SpiceJet operates the single-fleet type, Boeing 737 NG, which helps them to reduce their maintainance cost by 2% per seat. SpiceJet has the highest aircraft utilisation rate of 12 hours, which helps the company add one extra flight a day with a similar fixed cost, when compared to its peers. Additionally, SpiceJet has a cost advantage over Jet Airways, as it has an average of 195 seats per aircraft, which is nearly 22% more when compared to an average of 16 seats/ aircraft for Jet Airways (Domestic). Since most of the costs are fixed per aircraft, additional seats per aircraft help SpiceJet in reducing their cost per aircraft This difference in seats per aircrafts provides SpiceJet with an advantage over Jet Airways, since, with most of the costs are fixed per aircraft, these additional seats help SpiceJet in reducing its cost per aircraft by generating more revenue at the same cost. As a result of this, SpiceJet can reduce the average Pax yield without reducing its profitability margin. For 9MFY21, The average Pax yield for SpiceJet is around Rs3,256, compared to a Pax yield of Rs4,76 for Jet Airways. It has been observed that when the Pax yield moves above Rs3,75, it results in a declining load factor. This is clearly visible in the case of SpiceJet (Pax yield of Rs3,256), which reported a 77% load factor, while Jet Airways (Pax yield of Rs3,75) managed to generate a comparatively lower load Factor of 71% for 9MFY21. May 3, 21 7

8 Due to its higher Pax yield, Jet Airways is able to generate a higher Revenue/ASKM of Rs4.3, compared to SpiceJet's Revenue/ASKM of only Rs2.4. However, on the EBITDA level, Jet Airways managed to generate only Rs.4/ASKM, which was lower than SpiceJet's Rs.5/ASKM, mainly because of higher operating costs. In percentage terms, Jet Airways reported an 8.8% margin, which is nearly half of SpiceJet's margin of 19%. However, Jet Airways (Domestic + International) registered a 77% load factor, on the back of better performance from international operations (load factor of 8%). On the EBITDAR level, Jet Airways (Domestic + International) reported a margin of 18%. Operating Lease v/s Financial Lease - SpiceJet v/s Jet Airways (Domestic + International) The choice of business model has become the main differentiator between SpiceJet and Jet Airways. While SpiceJet operates on a 1% operating lease model, Jet Airways operates on a mix of a financial lease and operating lease model. Since Jet Airways is a highly-leveraged company, on the back of its mixed lease model (under which it finances aircraft purchases through debt), the interest and depreciation costs have become major causes of concern. Although both the companies managed almost similar margins of 18% and 19% at the EBITDAR level, the difference in the PBT is huge. At the PBT level, SpiceJet reported a margin of 2.1%, largely because the depreciation and interest costs are negligible (does not own any aircrafts). On the other hand, Jet Airways reported a negative PBT margin of 6.9%, inspite of similar EBITDAR margins, because of the high depreciation cost on their owned aircraft and the high interest cost on the outstanding debt. We believe that the financial lease model has been a major impediment for Jet Airways. Hence, we believe that the operating lease model is better than the financial lease model, as rentals on aircraft cost 1-11% of the total value of the aircraft annually; additionally, these contracts are highly flexible and short-term in nature (3-8 years). In the airline industry, where the working capital requirement is generally negative, the operating lease model makes the whole business non-capital intensive. Companies need to be profitable to increase capacity All aviation companies in India have been in the red in FY29, and this fact has not been any different for the 9MFY21 except in the case of SpiceJet, which is the only listed player to have reported a profit of Rs34cr (as against a loss of Rs526cr for Jet Airways and Rs1,75cr for Kingfisher). Since companies such as Jet Airways and Kingfisher have been making huge losses over the last couple of years, and are highly financially leveraged, not many aircraft leasing companies are interested in leasing out planes to them, since there is the risk of default on regular lease payments (which is the case for Paramount Airlines). Thus, if these companies have to expand their fleet size, we believe that they first have to be profitable for at least a couple of years, so as to fund their future expansion through internal accruals, rather than adding on more debt and increasing their interest burden. May 3, 21 8

9 Exhbit 9: Business Model Comparison (9MFY21) (Rs cr) Jet Airways SpiceJet Consol. Int. Domestic Total Income 7,582 4,42 3,161 1,616 Load Factors ASKM 2,148 1, PKM 1,654 1, Revenue/ASKM Revenue/PKM Aircraft Fuel Exp 2,35 1, (% of Net Sales) Fuel/ASKM Employee (% of Net Sales) Employee/ASKM Other Exp 3,6 1,562 1, (% of Net Sales) Other Exp/ASKM Total 6,231 3,348 2,884 1,39 (% of Net Sales) Total Cost/ASKM EBITDAR 1,35 1, (% of Net Sales) EBITDAR/ASKM Rentals (% of Net Sales) Rentals/ASKM EBITDA (42.2) 11.7 (% of Net Sales) (1).7 Dep (% of Net Sales) EBIT (239.) 5.9 (% of Net Sales) (7.6).4 Interest (% of Net Sales) EBT&O.I..I. (719.5) (12.9) (598.6).8 (% of Net Sales) (9.5) (2.7) (18.9).1 Other Income (% of Net Sales) E.I (4.) EBT (526.2) (83.3) (442.9) 34. (% of Net Sales) (6.9) (1.9) (14.) 2.1 Tax (.1) Reported PAT (526.2) (83.8) (442.4) 34. (% of Net Sales) (7) (2) (14) 2 May 3, 21 9

10 High Load factor to increase profitability Given that almost all costs are largely fixed in the Aviation Industry,, the improvement in the load factor is expected to drive a substantial spurt in Profits Given that almost all costs are largely fixed in the Aviation Industry, the improvement in the load factor is expected to drive a substantial spurt in Profits. This was clearly visible for SpiceJet, which reported an average load factor of 8% over the last six months (among the highest in the industry), and reported Net Profit of Rs19cr (loss of Rs43cr in 3QFY29) in 3QFY21. SpiceJet's EBITDAR Margin, at 31%, is also the highest compared to its listed peers (2.2% for Jet Airways, 17.7% for JetLite), due to its Operating lease-based, low-cost models. Going forward, with hardly a 5% increase expected in capacity in FY211E, the whole domestic aviation sector is going to experience high load factors. Historically, SpiceJet has been reporting better load factors than the industry, and we expect this trend to continue in the future, as well. With strong expansion plans, robust passenger growth and lower capacity additions, SpiceJet is expected to experience load factors of around 76% for FY21E, 81% in FY211E and 8% in FY212E. Exhibit 1: Profits to surge with increasing load factors (Rs) (%) E 211E 212E Gross Profit/ASKM Cost/ASKM Load Factor With an expected increase in fleet size from 19 planes to around 27 planes by FY212E (4 planes in CY211E and 4 planes in CY212E), SpiceJet is expected to increase its passengers carried from 4.6mn in FY29 to 6.6mn in FY21E and to 9.3mn in FY212E, at an estimated CAGR of 26% over FY29-FY212E. This is higher than the estimated overall passenger CAGR of 13% for the entire industry over the same period, and will result in an increase in the market share for SpiceJet (expected to increase from 12% in FY29 to 17% in FY212E). May 3, 21 1

11 Strong expansion plans to aid robust revenue growth SpiceJet will be taking delivery of about 9 aircrafts by FY212E based on its existing orders, taking its total fleet size to 27 aircrafts SpiceJet will be taking delivery of about 9 aircrafts by FY212E based on its existing orders, taking its total fleet size to 27 aircrafts. The increase in capacity and strong load factors will provide a strong revenue visibility for SpiceJet. The company's revenues are expected to grow at a CAGR of 23% over FY29-FY212E, and, concurrently, its net profit is expected to register a CAGR of 31% over FY21E-FY212E, in absolute term an increase of Rs3cr & Rs377cr in FY211E-12E and the company's revenues are expected to be around Rs2,26cr in FY21E, Rs2,687cr in FY211E and Rs3,158cr in FY212E. Exhibit 11: Strong revenues contributing to profits 3, 2,5 2, (Rs cr) 1,5 1, 5 - (5) E 211E 212E (1,) Operating Revenue Net Profit Strengthening Balance Sheet Substantial increase in Networth and Cash Reserves The company's Balance sheet strength will also go up significantly,, with an estimated Net worth of about Rs989.4cr, a net cash balance of Rs1,311cr by FY212E. In a worst-case scenario, where SpiceJet witnesses a load factor of just 5%, it would have enough cash to sustain its operational expenditure for 14 months, without diluting any equity The company's US $79.8mn FCCBs are likely to get converted into equity by December 21 (at Rs25/share). After the conversion, the total outstanding equity will stand at 4.4cr shares. After the conversion of the FCCBs, the company will have a total of Rs82cr of debt on its books, which we expect it to repay by the end of FY211E. SpiceJet is also planning to raise around Rs35cr through a QIP to fund its future expansion plans. Along with its strong profitability, the company's Balance sheet strength will also go up significantly, with an estimated Net worth of about Rs989.4cr, a net cash balance of Rs1,311cr by FY212E. We expect SpiceJet to report strong profitability for FY211E, due to revived demand and a relatively lower domestic fleet addition (just 5%). In order to test the balance sheet strength of the company, we have undertaken a scenario analysis to identify its sustainability on the back of its cash position. SpiceJet is expected to build a strong cash reserve of Rs874cr as on FY211E. In a worst case scenario, where SpiceJet witnesses a load factor of just 5%, it would have enough cash to sustain its operational expenditure for 14 months, without diluting any equity. Historically, SpiceJet has witnessed a lowest load factor of 67% in FY29; hence, it has a substantial margin of safety, with its average load factor being 76% between FY Even if SpiceJet experiences lower load factors to the extent of 65% in FY212E, it is expected to have May 3, 21 11

12 built a strong cash position to sustain itself for nearly five years. Given its capability to survive the downturns with lower leverage, we expect SpiceJet to outperform its peers. Exhibit 12: Scenario Analysis for FY212E Load Factor (FY212E) (%) Concerns Low Entry Barriers and Highly Competitive (Rs cr) Revenues (FY212E) 1,974 2,171 2,369 2,566 2,763 2,961 3,158 3,356 Expenses (FY212E) 2,737 2,741 2,745 2,749 2,753 2,757 2,761 2,764 EBITDA (FY212E) (763) (57) (376) (183) Cash (FY211E) PAT (FY212E) (582) (422) (262) (13) Cash / EBITDA Loss (x) There is low entry barrier for the aviation sector, as any company can start an airline based on the operating lease model, which requires minimum capital to begin with and most of the fixed assets can be acquired at 1% of the total cost per month. The entry of new players can lead to an increase in capacity and will eventually lead to an increase in competition among airlines resulting in a price war as companies will be forced to reduce their ticket prices, which will result in a lower average yield and will have a negative impact on revenues in the short run (it can also lead to losses). Such intensive competition was clearly visible during FY27-8, due to excessive capacity additions, which resulted in lower industry load factors and lower profitability. Existing players can also increase their capacity which will lead to lower than expected load factor due to higher capacity. Exhibit 13: Sensitivity of PAT to change in low factors (Rs cr) Load Factor (FY212E) (%) PAT (FY212E) (582) (422) (262) (13) Lower-than-expected traffic growth Any downturn in the economy can lead to lower-than-expected passenger traffic growth, which can have a negative impact on load factors, and can eventually have a negative impact on the profitability. May 3, 21 12

13 ATF prices Historically, an increase in ATF prices usually leads to an increase in Pax Yields, because the company passes on the additional fuel cost to the consumers. It is noted that the load factor lends to dip dramatically when the Pax Yield moves above the Rs3,75 level. Given the current scenario, the Pax Yield is expected to be around the Rs3,4 level in FY211E and crude oil is expected to be around $87.5 levels. This implies that for Pax Yield to move above Rs3,75 level the crude oil should be around $1 levels. Thus, if the price of crude oil moves above $1, the company could face a significant dip in load factors, which will lead to lower profitability. Exhibit 14: Higher Pax yield leading to lower load factor Crude $75 $91 $98 $124 $119 $58 $43 $6 $68 $76 PaxYield (%) 9 8% 8 76% 76% 75% 71% 7% 72% 7 66% 59% 6 56% Q28 Q38 Q48 Q19 Q29 Q39 Q49 Q11 Q21 Q31 Load Factors (LHS) Pax Yield change (RHS) Atf Price Change (RHS) (2) (4) (6) (8) (%) Exhibit 15: Sensitivity of PAT to change in ATF and Pax yield (FY211E) Net Profit (Rs cr) Pax yield change (%) (2.5) (2.5) ATF price change (%) May 3, 21 13

14 Financial Overview Revenues expected to increase by 3.6% from Rs1,689cr in FY29 to Rs2,26cr in FY21E In FY29, the company's registered an increase of 3% in revenues, even during the economic downturn, due to a higher yield per pax (passenger) of Rs3,356 (Rs2,65 in FY28). In 9MFY21, SpiceJet's revenue have increased by 27% to Rs1,616cr (from Rs1273cr in 9MFY29), aided by strong passenger growth and higher load factors (to the tune of 8%+). The average Pax yield for 3QFY21 stood at Rs3,256 and is expected to continue to remain in these levels, going ahead, in 4QFY21E. In 4QFY21E, we expect the company to report a strong revenue on a yoy basis, as the demand has picked up substantially, with the economy back on track and with SpiceJet reporting 8%+ load factors for the months of January and February, 21. We expect an increase of about 42% yoy in the 4QFY21E Top-line to Rs59cr, mainly on the back of a revival in passenger traffic and high load factors. For FY21E, we expect an increase of 31% in the top-line. In absolute terms, we estimate revenues to increase from Rs1,689cr in FY29 to Rs2,26cr in FY21E. Going ahead, we expect revenues to increase to Rs2,687cr and Rs3,158cr in FY211E and FY212E, respectively. After FY21E, revenues will be mainly driven by a strong expansion of fleets and strong passenger growth. Exhibit 16: Robust Growth in Revenues to continue 3,5 3,158 3, 2,687 2,5 2,26 (Rs cr) 2, 1,5 1,295 1,689 1, E 211E 212E Operating Revenue Operating Margins to turn around SpiceJet is expected to report its first positive OPM for the whole year FY21E,, at 6%. SpiceJet's operating margins have always been in the red, and the company reported an operating loss for FY29, mainly because of the poor economic conditions, lower passenger traffic and higher ATF prices. But, with the economy reviving, the scenario has changed for SpiceJet, as the passenger traffic is back to its previous levels and ATF prices have stabilised, due to which the company reported a positive OPM in 3QFY21, to the tune of 16%. In absolute terms, the company reported Operating profit of Rs19cr, which is the highest amongst all its listed peers. SpiceJet has been reporting strong load factors for the first 2 months of 4QFY21; thus, we expect it report a positive OPM for this quarter as well. The company is expected to report its first positive OPM for the whole year FY21E, at 6%. In absolute terms, we expect the company to report an Operating Profit of around Rs157cr for FY21E. Going ahead, we expect the OPM to gradually improve to 12% and 12.6% for FY211E and FY212E, respectively. In absolute terms, we expect the company to register an operating profit May 3, 21 14

15 of Rs319cr and Rs398cr in FY211E and FY212E, respectively (compared to an operating loss of Rs419cr in FY29), mainly because of robust passenger traffic growth, lower capacity additions and better load factors. Exhibit 17: Strong Turnaround in operating profits (Rs cr) (1) (2) (33) (77) (134) (5) (1) (15) (%) (3) (2) (4) (353) E 211E 212E (25) Net Profit (LHS) Margin (RHS) Company to register its first ever Net Profit in FY21E Net profit is expected to increase from (Rs353cr) in FY29 to Rs3.5cr in FY211E and Rs376.5cr in FY212E. SpiceJet registered its worst ever loss in FY29 to the tune of (Rs353cr) mainly because of lower load factors and higher ATF prices. But things have turnaround for the company as it has reported a profit of Rs19cr for the 3QFY21 which is the highest profit amongst listed peers. This turnaround is set to continue in the 4QFY21 on back of higher load factors which the company has been reporting in the first two months of this quarter. For the whole FY21E, we expect the company to register a NPM around 7.5% (-21%) and a Net profit of Rs166cr (-Rs353cr). This profit making trend is set to continue going ahead for FY211E and FY212E as demand is expected to outpace supply and thus will result in higher load factors for the company. We expect the NPM to improve to 11.2% and 11.9% in FY211E and FY212E respectively. In absolute terms we expect the Net profit to increase from (353cr) in FY29 to Rs3.5cr in FY211E and Rs376.5cr in FY212E. Exhibit 18: SpiceJet will register its first ever net profit in FY21E (Rs cr) (1) (2) (33) (77) (134) (5) (1) (15) (%) (3) (2) (4) (353) E 211E 212E (25) Net Profit (LHS) Margin (RHS) May 3, 21 15

16 Outlook and Valuation SpiceJet is present in a high growth industry and is one of the fastest growing LCCs, and, given the change in preference from FCCs to LCCs, it is best placed to benefit from the economic recovery and the growing passenger traffic demand. Going forward, with hardly a 5% growth expected in capacity in FY211E, the whole domestic aviation sector is going to experience high load factors. Historically, SpiceJet has been reporting better load factors than the industry, and we expect this trend to continue in the future, as well. With strong expansion plans, robust passenger growth and lower capacity additions, SpiceJet is expected to experience load factors of around 77% for FY21E, 81% in FY211E and 8% in FY212E. SpiceJet will be taking delivery of about 9 planes by FY212E based on its existing orders, taking its total fleet size to 27 planes. The increase in capacity and strong load factors will provide a strong revenue visibility for SpiceJet and it is expected to register a CAGR of 2% in revenues over FY21E-FY212E. SpiceJet is expected to build a strong cash reserve of Rs1,311cr and Net Worth of Rs989.4cr as on FY212E. With the revival in the economy, strong passenger growth, high load factors, strengthening balance sheet and strong revenue visibility, we initiate coverage on the stock with a Buy recommendation and a target multiple of 9x FY212E EPS of Rs9.3, to arrive at a target price of Rs84, implying a upside of 33%. Exhibit 19: Comparative Valuation Revenues (Rs cr) Net Profit (Rs cr) EPS P/E (x) RoE (%) EPS Growth (%) Target FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY11E FY12E FY12E (Rs) SpiceJet 2,687 3, Jet Airways* 13,695 15, (N/A) ; Note: * Bloomberg Consensus Figures May 3, 21 16

17 Company Background SpiceJet Ltd was incorporated in the year 1984, with the name Genius Leasing Finance and Investment Company Ltd. It was only in the year 1993 that the company ventured into domestic aviation operations under a technical partnership with Deutsche Lufthansa AG and started managing the entire airline operations by June The company suspended its Airline operations in the year 1996 after dissension, and, in the year 2-1, the name of the company was changed from ModiLuft Ltd to Royal Airways Ltd. The company started its commercial operations of domestic flight services on May 23, 25, with three leased Boeing aircraft. During the year 24-5, it signed an agreement with Boeing for acquiring 2 (737-8) aircrafts and in May 4, 25, the company changed its name from Royal Airways Ltd to SpiceJet Ltd. Currently, SpiceJet is the one of the fastest-growing LCCs in India, with a market share of around 12%. The company operates a single-aircraft-type fleet (Boeing 737), which allows for greater efficiency in maintenance, and supports its low-cost structure. SpiceJet currently has 2 aircrafts and operates flights to 19 destinations all over India (with 125 flights daily). It operates on a point-to-point model and has its primary hub in Delhi. The company was awarded the best LCC airline in the HT MaRS study for 29. The company will finish five years of domestic operations in May 21, and will be starting international operations from June 21, with flights to Kathmandu, Colombo and Dhaka. May 3, 21 17

18 Profit & Loss Statement (Consolidated) Rs crore Y/E March FY27 FY28 FY29 FY21E FY211E FY212E Gross sales 749 1,295 1,689 2,26 2,687 3,158 Net Sales 749 1,295 1,689 2,26 2,687 3,158 Total operating income 749 1,295 1,689 2,26 2,687 3,158 % chg Total Expenditure 92 1,547 2,19 2,75 2,368 2,761 Fuel & Oil ,111 Other Mfg costs Personnel Other EBITDA (17.3) (252.) (419.2) % chg (131.2) (% of Net Sales) (22.7) (19.5) (24.8) Depreciation& Amortisation EBIT (176.2) (259.8) (426.4) % chg (128.8) (% of Net Sales) (23.5) (2.1) (25.2) Interest & other Charges Other Income (% of PBT) (148.5) (11.5) (39.) Recurring PBT (72.6) (13.) (318.3) % chg (153.3) Extraordinary Expense/(Inc.) PBT (reported) (76.) (131.1) (349.2) Tax (% of PBT) (1.3) (1.8) (1.) PAT (reported) (77.) (133.5) (352.6) PAT after MI (reported) (77.) (133.5) (352.6) ADJ.. PAT (77.) (133.5) (352.6) % chg (147.) (% of Net Sales) (1.3) (1.3) (2.9) Basic EPS (Rs) (3.2) (5.5) (14.6) Fully Diluted EPS (Rs) (3.2) (5.5) (14.6) % chg (128.1) May 3, 21 18

19 Balance Sheet (Consolidated) Rs crore Y/E March FY27 FY28 FY29 FY21E FY211E FY212E SOURCES OF FUNDS Equity Share Capital Reserves& Surplus (56.1) (212.7) (67.5) (54.8) Shareholders Funds (429.5) (263.8) Total Loans Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Investments Current Assets ,17.5 1,654.3 Cash ,311.2 Loans & Advances Inventories Debtors Other Current liabilities Net Current Assets (27.2) 3.8 (193.5) (9.7) Total Assets Cash Flow Statement (Consolidated) Rs crore Y/E March FY27 FY28 FY29 FY21E FY211E FY212E Profit before tax (183.8) (274.7) (473.3) Depreciation Change in Working Capital (179.) ADD: Other income Direct taxes paid Cash Flow from Operations (48.8) (524.3) (Inc.)/ Dec. in Fixed Assets (334.7) (1.5) (11.7) (13.) (Inc.)/ Dec. in Investments (81.2) (Inc.)/ Dec. in loans and advances (33.7) (6.8) 21.9 (47.2) (43.9) (43.) Other income/expense (57.8). - - Cash Flow from Investing (38.9) (57.7) (55.6) (56.) Issue of Equity Inc./(Dec.) in loans (51.3) - (82.2) - Cash Flow from Financing (44.7) - (27.7) - Inc./(Dec.) in Cash (3.1) Opening Cash balances Closing Cash balances ,311.2 May 3, 21 19

20 Key Ratios Y/E March FY27 FY28 FY29 FY21E FY211E FY212E Valuation Ratios (x) P/E (on FDEPS) (19.5) (11.3) (4.3) P/E (on basic, reported EPS) (19.5) (11.3) (4.3) P/CEPS (21.1) (12.) (4.4) P/BV (3.5) (5.7) Market cap. / Sales EV/Sales EV/EBITDA (9.3) (5.7) (4.) EV / Total Assets Per Share Data (Rs) EPS (Basic) (3.2) (5.5) (14.6) EPS (fully diluted) (3.2) (5.5) (14.6) Cash EPS (3.) (5.2) (14.3) DPS Book Value (17.8) (1.9) Returns (%) ROCE (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Total Assets) Oper. Income / Invested Capital (11.7) (7.8) (9.3) (1.8) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) (154.6) (163.8) (119.5) (87.4) (66.) (47.5) Solvency ratios (x) Gross debt to equity (1.1) (1.9) - - Net debt to equity 8.7 (2.4) (.4).2 (1.4) (1.3) Net debt to EBITDA..3 (.4) (.4) (2.7) (3.3) Interest Coverage (EBIT / Interest) (41.3) (18.9) (26.6) May 3, 21 2

21 SpiceJet Disclaimer This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Disclosure of Interest Statement SpiceJet 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors. Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to -15%) Sell (< -15%)

22 SpiceJet Address: Acme Plaza, A Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai Tel : (22) / Research Team Fundamental: Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com Anand Shah FMCG, Media anand.shah@angeltrade.com Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com Puneet Bambha Capital Goods, Engineering puneet.bambha@angeltrade.com Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com Paresh Jain Metals & Mining pareshn.jain@angeltrade.com Amit Rane Banking amitn.rane@angeltrade.com Rahul Jain IT, Telecom rahul.j@angeltrade.com Jai Sharda Mid-cap jai.sharda@angeltrade.com Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com V Srinivasan Research Associate (Cement, Power) v.srinivasan@angeltrade.com Aniruddha Mate Research Associate (Infra, Real Estate) aniruddha.mate@angeltrade.com Shreya Gaunekar Research Associate (Automobile) shreyap.gaunekar@angeltrade.com Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angeltrade.com Chitrangda Kapur Research Associate (FMCG, Media) chitrangdar.kapur@angeltrade.com Vibha Salvi Research Associate (IT, Telecom) vibhas.salvi@angeltrade.com Pooja Jain Research Associate (Metals & Mining) pooja.j@angeltrade.com Technicals: Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com Derivatives: Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com Sandeep Patil Jr. Derivative Analyst patil.sandeep@angeltrade.com Institutional Sales Team: Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angeltrade.com Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angeltrade.com Nitesh Jalan Sr. Manager niteshk.jalan@angeltrade.com Pranav Modi Sr. Manager pranavs.modi@angeltrade.com Sandeep Jangir Sr. Manager sandeepp.jangir@angeltrade.com Ganesh Iyer Sr. Manager ganeshb.iyer@angeltrade.com Jay Harsora Sr. Dealer jayr.harsora@angeltrade.com Meenakshi Chavan Dealer meenakshis.chavan@angeltrade.com Gaurang Tisani Dealer gaurangp.tisani@angeltrade.com Production Team: Bharathi Shetty Research Editor bharathi.shetty@angeltrade.com Dharmil Adhyaru Assistant Research Editor dharmil.adhyaru@angeltrade.com Bharat Patil Production bharat.patil@angeltrade.com Dilip Patel Production dilipm.patel@angeltrade.com Angel Broking Ltd: BSE Sebi Regn No : INB / CDSL Regn No: IN - DP - CDSL / PMS Regn Code: PM/INP1546 Angel Securities Ltd:BSE: INB /INF NSE: INB /INF Membership numbers: BSE 28/NSE:9946 Angel Capital & Debt Market Ltd: INB / NSE FNO: INF / NSE Member code Angel Commodities Broking (P) Ltd: MCX Member ID: / FMC Regn No: MCX / TCM / CORP / 37 NCDEX : Member ID 22 / FMC Regn No: NCDEX / TCM / CORP / 32