Friday, January 29, 2016

Buy SpiceJet CMP: Rs.90.20; Target: Rs.128

SpiceJet is an Indian low-cost airline headquartered in Gurgaon. The Indian aviation sector is in a sustained growth phase on the back of multiple levers such as increasing load factor, sustained growth in passenger traffic and fall in jet fuel prices. 

Lower industry fleet size and the continued propensity of travellers to gravitate towards low cost airline carriers (as against preferring alternative modes or full service carriers) have led to higher passenger load factor (PLF) for the airline companies. Our positive stance on the sector is further reinforced by the sharp fall in crude oil price which leads to not only higher profitability, but eases up the working capital requirement.

With aviation companies performing better on parameters related to both revenues and profitability we place an overweight stance on the sector. 

As a turnaround story, we believe that SpiceJet is in a strong position to provide the best profitability growth in the sector, along with relative cheaper valuations as compared to the industry leader InterGlobe Aviation.

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