Fuel benefits drive healthy show in a seasonally weak quarter
Despite being a seasonally weak quarter, Q4FY16 revenue of INR14.75bn was up 1% QoQ aided by 10% jump in volumes though partly offset by lower yields (down 8% QoQ). SpiceJet not only recouped volumes during the quarter (handled 3.39mn passenger versus 1.99mn in Q4FY15), but also recorded healthy ancillary income of 13.3% (of pax revenues) versus 8.6% YoY. While lower fuel costs continued to benefit (fuel CASK at INR0.87/ASKM, down 18% QoQ), the company had to provide INR1.5bn towards engine maintenance on reassessment of its liabilities which impacted margins. Thus, it reported lower EBITDAR at INR2.9bn versus INR4.3bn estimate. Adjusting for same and INR637mn of exceptional gains, adjusted PAT of INR1.5bn surpassed our INR1.3bn estimate.

Liabilities accounted for; to commence fiscal with renewed vigour
Having provided INR1.5bn for meeting maintenance related obligations for the leased aircraft and INR233mn towards aircraft redelivery expenses during the quarter (INR2.3bn also provided for aircraft redelivery in FY15), management has maintained all legacy issues have now been completely provided for. SpiceJet reduced debt and past dues by ~INR2bn each during FY16, which is expected to continue in FY17 as well.

Outlook and valuations: Positive; maintain ‘BUY’

After successfully maximising earnings through strong revenue management – pricing strategies and ancillary income– and fuel benefits, we believe incremental gains will be driven by volumes and cost rationalisation. We model for volume growth of ~20% and expect cost rationalisation benefits to help SpiceJet report earnings growth of 50% plus for FY17E, i.e. PAT of INR6.5bn (revised up by 10%). Maintain ‘BUY’ valuing the stock at 7.5x FY18E EV/EBITDAR, resulting in TP of INR102.