Spicejet, going the way of Jet airways ? ~ Shareholder Awareness Program

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Spicejet, going the way of Jet airways ?

spice jet red hot spicy, bankruptcy

Spice jet, going the way of jet airways?

Article published as on Wednesday, 18th April, 2020 at 10:30 a.m.   


Aviation sector works on cut throat competition, it is constantly into price war and survives on volume of seats sold.


Airlines drop the fare to increase market share, and this sector has seen huge passenger growth but its sustainability is into question marks.


Coming to spice jet, the most efficient aviation company with passenger load factor above 90%.


Along with turnaround story after Ajay Singh took charge in late 2014. This company did well, as it was growing market share and surviving in tough condition which was in itself a thing to cheer and appreciate.


Ajay Singh did a great job turning around the company, spice jet even launched jet flying with eco fuel which again showed their dedication and long term vision.



Well what’s wrong now?


Let’s study its competitors first.


Indigo - market leader and has huge cash reserves to survive in this industry. (It is the JIO of the aviation sector.)


Go air - owned by Wadia group, small market share and having backing of promoters with deep pockets.


Vistara and AirAsia- they have small market share and they both are having Tata’s in their joint ventures.  Tata's again are deep pocket promoters.


Coming to spice jet.

It is owned by Ajay Singh. Very talented and competent person, but not having deep pockets to burn cash and keep business surviving long enough.


Another main aspect is financials let’s have a look.


Share price.    46.80 INR

Market cap.   2796.36 crores


FY 2018-19 

NETWORTH -350 crores (negative 350 crores)


 FY 2019-20 net profit for 9Month ending December is -127 crores.


Another aspect is its annual interest payments: (figures in INR crores)


FY16. 102.53

FY17.  33.64

FY18.  39.19

FY19.  44.79


These interest figures are not high for company as big as spice jet.


The reason is that, spice jet is working on negative working capital and surviving.


For so many years, investors believed it was a great that company can survive on negative working capital without raising much debt.

But some day even these current liabilities need to be paid off. And spice jet is once again running out of cash to pay of its expense, on the other hand Indigo is in much better position right now.


Let’s look at some of the serious problems spice jet may face.


·        Their net worth is negative from years, but now situation had worsened and they are in very tight position.

·        They have very little cash on books to pay of the debts.

·        Their profitability is very volatile depending on crude movement.

·        Their profitability may take hit due to lockdown situation.

·        They don’t have deep pocketed promoters to infuse further cash.

·        Government policies and taxation along with high competition are too much of a challenge for survival in aviation industry.



All these factors are from years but now the situation has worsened and spice jet is in the weaker spot, and most likely the next airline that could go for bankruptcy.



Comforting factors and what measures can save them.



·        Promoters experience and capability provide a bit comfort. Well they definitely don’t want their company to go bankrupt.


·        Equity dilution shall be done, as bringing in more cash is very important for survival. It would be lifesaving blood for spice jet.


·        Its business of cargo shipment (logistics) provides a diversification from high competition passenger business.


Conclusion, if any airlines were to go bankrupt spice jet is in weakest spot and most likely to go bankrupt.


This is not a corporate governance issue but the case of deteriorating financial condition of the company.


Maybe that is the reason why it is again trading around 47 rupees, many investors would have feared deteriorating condition and exited this stocks. Compared to it indigo stock price has reduced but with much less intensity.


It still has the ability to survive, management is great it just needs to take right measures. But still Investors should stay cautious with this particular stock.


Investors shall monitor situation of capital raising, and avoid spice jet for now.


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