Book Partial Profit - SpiceJet

SpiceJet (BSE Code 500285) was part of our recommendations in the Low Price column in Issue No 13 dated June 20, 2010. The stock was recommended for buying at the price of `56.45 on the back of three main reasons at that point of time, viz. the company was expected to start night flights to three SAARC destinations from July 2010 to improve aircraft utilisation, it reported net profit for the first time in FY10 at `61.54 crore, and it carried 1.67 million passengers during the Q4FY10 quarter as against 1.37 million in Q4FY09.

One of the recent developments is that Sun TV’s promoter, Kalanithi Maran, has announced an intention to buy a stake of 37.75 per cent in SpiceJet from the company’s promoter Bhupendra Kansagra (Royal Holdings Services) and investor Wilbur Ross. We believe that Maran’s entry into SpiceJet as the single largest shareholder will work as a positive factor as earlier its shareholding was very fragmented, resulting in little management control.

At present the stock is quoting at `73.05, thus providing gain of 29.41 per cent from the price it was recommended at. In the recently concluded Q1FY11 SpiceJet inducted its 22nd aircraft into the fleet with six more deliveries scheduled until 2012 (roughly one per quarter). It is additionally planning to add three more aircraft before December 2010 to capture the industry’s growth.

SpiceJet is going to retain its plans of international operations post the ownership change. It is going to begin night flights to four South Asian destinations from 3QFY11. This would improve aircraft utilisation by 5 per cent to 10 per cent (from 12.5 hours to 13.5 hours). Therefore, our suggestion to readers is to book partial profit in the counter of around 50 per cent and stay invested in the rest for better yields in the future.