Sucheta Dalal :SpiceJet’s profits spiced up?
Sucheta Dalal

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SpiceJet’s profits spiced up?  

August 2, 2012

The Kalanidhi Maran owned SpiceJet has broken the jinx of five consecutive quarters of losses and a posted profit of Rs56.15 crore in the June quarter. However, the auditors have voiced their concerns in their review report

Moneylife Digital Team

The Kalanithi Maran-controlled SpiceJet has reported profits, a rarity for an airline. Its net profit for the quarter ended June 2012 grew to Rs56.15 crore when compared to a massive loss of Rs71.96 crore recorded in the corresponding quarter of the previous fiscal. It sales for the latest quarter improved by 51%, year-on-year, to Rs1,406.74 crore. According to the company, its market share has increased to 18.6% as of 30 June 2012, from 17.1%. Ace speculator Rakesh Jhunjhunwala’s Rare Enterprises bought 25 lakh shares of the scrip at a price of Rs30.77.


Do all the numbers look good as they make out to be? On closer examination, auditor SR Batliboi & Associates, reveals that it has used accounting methods to boost net profit. The auditor note said, “No provision has been made for interest of Rs747.1 lakh up to 30 June 2012, relating to earlier years on the outstanding inter-corporate deposits taken by the company. Had the same been accounted for, the net profit (after tax) for the quarter ended 30 June 2012, would have been lower by Rs597.60 lakh and accumulated losses as at date would have been higher by the same amount.” Even an exceptional income to the tune of Rs12.86 crore boosted its net profit. The income in question was the warranty claim set against some of the exceptional costs it incurred on engine repair last year.


No doubt there has been genuine improvement in revenues and profit but this seems to because of the ongoing troubles of Kingfisher Airlines. For instance, the airline witnessed a 26.1% increase in number of passengers. This helped SpiceJet return to profitability after five quarters, despite rising oil prices. The average revenue per passenger in the quarter increased by 24% from Rs3,283 to Rs4,068 and this helped its topline grow as people shift from Kingfisher Airlines to SpiceJet as well as other airlines. Even the plane load factor increased from 78.9% to 80.3%, year-on-year, for the quarter ended 30 June 2012.


Despite recording profits, Neil Mills, its chief executive office voiced concern and said in the press statement, “While we expand our footprint in domestic as well as international sectors, the excessive taxation on ATF (aviation turbine fuel) in India and the weakening of rupee against the dollar are matters of serious concern. The sharp increase in airport charges and other pass-through levies in various forms increase the cost of air travel to our passengers, without bringing any additional revenue to the airline. The need of the hour is for the Government of India to intervene proactively and launch initiatives urgently to improve the health of Indian civil aviation.”


The bigger issue for SpiceJet investors would simply be what happens when a restructured Kingfisher comes back and dramatically improves the supply side. Returns of SpiceJet shareholders including Mr Jhunjhunwala’s would be based more on what Vijay Mallya is not able to do rather than what Mr Maran is able to do.

-- Sucheta Dalal