SpiceJet is world’s top airline stock
mumbai/new delhi — Two and a half years after SpiceJet was forced to ground its entire fleet on its inability to pay a mere $2.2 million in fuel bills, the budget airline has become the world’s best-performing airline stock — with $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 fastest growing 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 in 2017 and has gained more than 800 per cent since the company’s neardemise in December 2014, giving SpiceJet a market value of $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, which has $30 billion in assets. 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. SpiceJet rose 0.2 per cent to ₹128.30 as of 9.30am in Mumbai on Tuesday while the broader S&P BSE Sensex index was up 0.3 per cent.
SpiceJet’s stock is “greatly undervalued” even at these levels, chairman Singh said in an interview to 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,” he said. “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 and Airbus, as airlines see increased demand from the rising middle class. Demand has pushed Singapore Airlines and AirAsia 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 Singh announced an order for the latest variant of Boeing’s workhorse 737 model worth $4.7 billion on June 19. A day later, he followed up with an order for 50 Bombardier Q400 turboprops worth $1.7 billion.
Profits, funding
SpiceJet is “doing extremely well” and expects profit to rise this year, spokesman Tushar Srivastava said in an e-mail. Funding arrangements for the plane orders are coming together and Srivastava sees “no great challenge” to financing the aircraft, he said. — Bloomberg