Authors:
MUKESH RANJAN
PARESH RAHEJA
SWAPNIL GUPTA
VIKASH CHAUHAN
FINANCIAL PROJECTIONS
ANALYSIS - SPICEJET LTD
Instructor:
Dr. NARAYANI RAMACHANDRAN, NMIMS,
BENGALURU
Table of Contents
1.
Introduction : .................................................................................... Ошибка! Закладка не определена.
2.
Industry Dynamics : ................................................................................................................................. 2
3.
Financial Projections Rationale:............................................................................................................... 2
3.1.
Colossal Order for Aircrafts to capitalize industry dynamics: ............................................................... 2
3.2.
Spicejet leadership in passenger load factor : ...................................................................................... 3
3.3.
Regional Connectivity Scheme (RCS) - UDAN : ..................................................................................... 3
3.4.
Improving Balance Sheet and Operating Efficiency: ............................................................................ 3
3.5.
Air connectivity through water bodies: ............................................................................................... 4
3.6.
Expansion of the Middle Class : ........................................................................................................... 4
4.
Appendix 1 - Timeline Projections of Factors affecting the revenue growth of SpiceJet .......................... 4
1. Introduction:
This report is prepared as part of a project for estimating the next four years financials (FY 2019-2022)
of SpiceJet Ltd. A combination of budgeted and Average percentage of sales method has been taken
to arrive at the figures for all the financial items. Budgeted items have been derived from industry
research and reports from sources such as IBEF and CAPA (Center for Asia Pacific Aviation).
SpiceJet is a low-cost airline headquartered in Gurgaon, India. It is the fourth largest airline in the
country by number of domestic passengers carried, with a market share of around 13%. SpiceJet files
close to 1.15 million passengers every month on its 408 average daily flights to around 45 domestic
and 7 international routes. SpiceJet is the only active participant in the ‘UDAN’, i.e. Regional
Connectivity Scheme (RCS) without viability gap funding and has its biggest expansion plan on the
cards. It was facing huge losses in 2013-14 and the Company was on the verge of shutting its
operations. However, it witnessed a turnaround in 2016 when Ajay Singh, the founder returned and
took control of the management.
2. Industry Dynamics:
India stands as the second fastest-growing country in the world in terms of domestic passenger
growth. Indian domestic air passenger traffic registered a CAGR of 9.89% during 2008-2017 while
international passenger traffic grew up by CAGR of 8%. We expect these to grow at around 10%-12%
for the next 2-3 years.
3. Financial Projections Rationale:
3.1. Colossal Order for Aircrafts to capitalize industry dynamics:
SpiceJet has ordered for 205 aircraft with Boeing. The deal is valued at $22 billion. Out of the 205
aircrafts, 155 are firm orders of Boeing737-8 MAX and includes 40 new Boeing 737-10 and for the rest
50, SpiceJet is having purchase rights which includes the airline’s capability to include long-haul
aircrafts. These aircrafts will come into operations from 2018 and will go until 2025. SpiceJet has also
signed the largest ever Q400 Turboprop order to increased market share in the regional space and
increase its capacity from 10% in the UDAN scheme. With the above-mentioned expansion on the
cards, we expect SpiceJet to gain market share in the Indian aviation market. We expect its mkt share
to grow steadily from current 12.8% to 18-19% by 2025. Refer Appendix 1 graphs for insight into
SpiceJet’s revenue forecasting based on factors like ASK ,RPK and Passneger Carrying capacity growth
rates.These aircrafts are brough on 75-25% lease and debt payment ratio.This will also have a
significant impact on their depreciation amount.The depreciation amount has been calculated taking
into consideration,their current fleet size of 64 (40 Boeing 737 and rest bombardier) having an average
aege of 8.1 years (total lifespan of 27years) and the new aircrafts that will be getting delivered in
batched upto 2025.
Figure 1
3.2. Spicejet leadership in passenger load factor :
SpiceJet has flown with the highest passenger load factors in the Indian aviation market for 3 years in
a row. PLF for SpiceJet has been in excess of 90% for the last 35 months-an achievement which is
unparalleled in the global aviation history. Recently, the company has achieved to clock 95%
occupancy even in the traditionally leaner month of March leaving behind the industry leader by
market share Indigo by 6-7%. We expect SpiceJet to continue with this trend of having PLF more than
90%.
3.3. Regional Connectivity Scheme (RCS) - UDAN :
SpiceJet has been awarded with 17 proposals under the second round of RCS. SpiceJet has announced
20 new non-stop domestic flights, aimed at strengthening its network across South India. The new
flights connecting the metro cities with the non-metros will give fresh impetus to the airlines regional
connectivity theme and help gain market share. In the first phase, SpiceJet was awarded with 6 routes
and it was the only airline that did not seek viable gap funding from the Government. We expect
SpiceJet to gain a healthy bite of the pie and continue as market leader in this segment.
3.4. Improving Balance Sheet and Operating Efficiency:
In order to clean the balance sheet SpiceJet has repaid its debt to a great extent by bringing it down
to around INR9.5 billion in FY18 from around INR17 billion in FY16. Secondly, the company’s focus is
on cost optimization and revenue maximization. For FY2017, Cost per Available Seat Kilometer (CASK)
ex-fuel was down by 20%. The company has worked upon its Revenue per Available Seat Kilometer
(RASK) and increased it to around INR3.76 levels. But due to the huge order size ,we expect it’s loan
numbers to almost double in FY 2019 and also the aircraft lease rentals expense to increase by almost
30% in FY19 and subsequent years.
3.5. Air connectivity through water bodies:
The Gurgaon-based airline is the only domestic airline to explore air connectivity through water bodies
such as rivers and waterways. SpiceJet is working on a cost effective plan to bring into operations small
amphibious and land planes. The company is expecting to start its operation commercially by 2019.
They are planning to start the operations with around 100 sea-planes. This will bring in the remotest
parts of India into the SpiceJet network. Sea-Planes will revolutionize the transport sector in India.
3.6. Expansion of the Middle Class :
According to CAPA, India’s annual per capita income has grown at a CAGR of 1.9%, from USD1,497 in
FY2012 to USD1,616 in FY2016. India’s growth in per capita income and overall population has caused
the rapid expansion in the size of India’s middle class, defined as households with a disposable income
of more than USD5,000 per year. This will further fuel the growth in aviation sector in India and we
SpiceJet to be a major beneficiary of this growth.
4. Appendix 1 - Timeline Projections of Factors affecting the revenue growth of
SpiceJet
Figure 2
Available Seat Kilometer
4000
30
3000
20
2000
10
1000
0
0
Passeneger Carried (in Crs)
4
-10
ASK(in
crores)
2
Growth rate
(%)
0
30
20
10
0
2015 2016 2017 2018 2019 2020 2021 2022
Passenger Carried (in Crs)
Revenue Passeneger
Kilometers (in Crs)
Mkt Share in domestic
Ops.(%)
4000
40
20
3000
30
15
2000
20
10
1000
10
0
0
2022
2021
2020
2019
2018
2017
2016
2015
RPK (in Crs)
Growth rate(%)
Growth rate (%)
5
0
2015 2016 2017 2018 2019 2020 2021 2022
Mkt Share in domestic Ops.(%)