SpiceJet: Concerns amid good show

SpiceJet’s June quarter profit rose 18 per cent y-o-y to ₹175 crore, a relief for the airline after two quarters of sharp profit decline. The good show was thanks to 9 per cent increase in passenger yields and continued growth in passenger numbers (19 per cent y-o-y) which translated into revenue growth of 23 per cent. Costs, especially fuel, rose faster though, resulting in margin moderation.

The stock though fell more than 3 per cent after the results announcement. The market weakness didn’t help, but other factors could be at play too. Huge capacity addition expected in the sector could depress fares, going forward. The recent adverse ruling of the Supreme Court in the share allocation dispute with the Marans is also a dampener.

Besides, SpiceJet’s profit growth in the June quarter was about half that of IndiGo Airlines. The stock’s valuation at 15 times is also higher than the average of 10 times in the past three years.

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