SPICEJET IS TOP AIRLINE STOCK
Firm has market value of US$1.2b while its shares gained over 800pc since 2014
NEW DELHI
TWO-and-a-half years after SpiceJet Ltd was forced to ground its entire fleet on its inability to pay a mere US$2.2 million (RM9.4 million) in fuel bills, the budget airline has become the world’s best-performing airline stock — with US$26 billion in plane orders to boot.
The company’s co-founder and chairman, Ajay Singh, has played the white knight, injecting capital, cutting loss-making routes and aggressively adding capacity in one of the world’s fastestgrowing markets. To top it all off, crude prices are staying low.
For investors, that’s been a winning formula: SpiceJet shares are the best performers on a Bloomberg Intelligence index of airline stocks this year.
The stock is up 124 per cent this year and has gained more than 800 per cent since the company’s near-demise in December 2014, giving SpiceJet a market value of US$1.2 billion.
The outlook for aviation stocks looks good “as long as oil prices are under control”, said Mahesh Patil, co-chief investment officer of Birla Sun Life Asset Management Co.
Birla held a stake of about 1.2 per cent in SpiceJet as of May 31, according to Bloomberg data.
More people will prefer to travel by plane as ticket prices fall, Patil said, declining to comment specifically on the carrier.
SpiceJet’s stock is “greatly undervalued” even at these levels, said Ajay in an interview with Bloomberg Television on Monday in Washington, ruling out any plan to sell a stake.
Only three per cent of Indians fly today, offering a huge room for growth, he said.
“There’s no reason for us to sell any stake at this valuation. We think there’s tremendous potential in India’s aviation market.”
India, which was the world’s fastest-growing aviation market last year, is crucial for planemakers like Boeing Co and Airbus SE, as airlines see increased demand from the rising middle class.
Demand has pushed Singapore Airlines Ltd and AirAsia Bhd to set up local units that are grappling with poor infrastructure, stiff competition resulting in below-cost fares and taxes that make jet fuel the costliest in Asia.
SpiceJet’s majority shareholder and Ajay announced an order for the latest variant of Boeing’s workhorse 737 model worth US$4.7 billion on June 19.
A day later, he followed up with an order for as many as 50 Bombardier Q400 turboprops worth US$1.7 billion.
SpiceJet is “doing extremely well” and expects profit to rise this year, said spokesman Tushar Srivastava in an email.
Funding arrangements for the plane orders are coming together and he sees “no great challenge” to financing the aircraft.
None of the analysts covering SpiceJet recommends selling the stock, according to Bloomberg data.
HDFC Securities Ltd, the only firm recommending the equivalent of a “hold” rating, still predicts profitability will increase “sharply” on a stronger rupee and weak oil prices. Bloomberg