SpiceJet Promoters Are Politically Controversial

SpiceJet Promoters Are Politically Controversial

Kalanithi Maran is facing CBI case
Kalanithi Maran is facing CBI case | Source

SpiceJet - Latest Results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
766.49
945.64
2,934.39
Net Profit
-240.07
-71.96
101.16
EPS
-5.92
-1.78
2.8
Cash EPS
-5.83
-1.71
2.72
OPM %
-29.68
-6.71
4.76
NPM %
-31.32
-7.61
3.45
 
 
 
 
SpiceJet - Latest Results

SpiceJet Share Price Trend

 
 
 
Weekly H/L
29.4
23.45
Monthly H/L
29.4
16.8
52 Weeks H/L
51.5
15.35
 
( 17 Feb 11 )
( 22 Dec 11 )
Delivery / Var+ELM %
35.58
21.69
SpiceJet Share Price Trend


Improvement In Market Share

SpiceJet has reported poor results for the quarter ended 30.09.11 as compared to the previous quarter. While the net revenue has dropped, the net loss has increased (see the tables). For the quarter ended 31.12.11, the company has posted a net loss of Rs.39.26 crore. This was because of the weakening of the Indian rupee against the dollar and escalating price of Aviation Turbine Fuel (ATF). In the corresponding period of the previous year, SpiceJet posted a net profit of Rs.94.44 crore. But during the quarter ended 31.12.11, SpiceJet was able to improve its market share, effect significant cost reduction and achieve an improvement in its revenue mix. It was also able to improve its operational efficiency which is reflected in the results in the form of reduced net loss as compared to the previous quarter. Reducing net loss from Rs.240 crore to Rs.39 crore is a significant achievement and that too at a time when the airline industry is not doing well.

Maran Brothers Enjoy Strong Support From Kapil Sibal And Rahul Gandhi

The shares of SpiceJet are traded in the Indian stock exchanges at Rs.26.25 now (BSE 08.02.12). SpiceJet is led by the controversial politician cum businessman Kalanithi Maran. His brother Dayanidhi Maran was recently ousted from the Central Cabinet because of a major scam. Allegations are there against Kalanithi Maran also. CBI has recently accused the Maran brothers of a major financial irregularity. There are rumours that the Maran brothers may be arrested at any time. What is more important, the Maran brothers cannot depend on the backing of the Tamil Nadu State government after the defeat of their party DMK in last year’s Assembly elections. At the Central government, however, they can get the support of Kapil Sibal and Rahul Gandhi. But whether this support is enough to wriggle out of the case remains to be seen.

Auditors’ Qualification

SpiceJet is a low-cost airline. Auditors of SpiceJet have cast their doubts about the ability of the airlines to survive in the turbulent atmosphere. The accumulated losses of SpiceJet have eroded its net worth. When Indian Bank’s entire net worth was eroded, the Central government pumped in huge capital because of the Tamil Nadu politicians’ influence and power. Manmohan Singh is inclined to pump in capital to save SpiceJet also as the airline belongs to one of the Congress Party’s coalition partners namely DMK. Moreover the Congress is dependant on the DMK for not leaking out the name and bank account number of the final beneficiary of the 2G spectrum scam. For this, the government will have to bail out SpiceJet from its financial difficulties. That was why Manmohan Singh announced bailing out of the Kingfisher Airlines recently. What he actually intended was to bail out SpiceJet. If the government helps Kingfisher and the decision is not questioned by the opposition parties and media, then the government can bail out SpiceJet also, quoting precedence.

Accumulated Losses Erode Net Worth

SpiceJet has accumulated losses amounting to Rs.1077 crore as on 31.12.11. The company’s net worth stood at Rs.315 crore. The services of SpiceJet are also not good. Recently 106 passengers were made to wait for more than four hours at Coimbatore Airport. They were waiting to board a SpiceJet flight from Coimbatore to New Delhi via Hyderabad. However, SpiceJet has gained 3% market share to reach 16% in October last year. The almost closing down of Kingfisher Airlines has benefitted SpiceJet. SpiceJet is also in an advantageous position due to regional connectivity of the airlines in tier-II and tier-III cities. SpiceJet uses Q-400 NextGen Turbi-prop airplanes for short-haul routes. SpiceJet is planning to connect Hyderabad, its base to another ten cities in South India. It has recently added Madurai and Agartala in its network.

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SpiceJet Promoters Are Politically Controversial

SpiceJet share price movement
SpiceJet share price movement | Source

SpiceJet Promoters Are Politically Controversial


CBI Will Be Filing Case Against The Maran Brothers

Recently Kalanithi Maran and Dayanidhi Maran have clarified that SpiceJet and Sun TV Network have nothing to do with the 2G spectrum scam and the illegal use of Ban’s telephone lines. But the public and the investors mostly do not believe their statements. CBI recently informed the Supreme Court of India that it will be filing a case against both Kalanithi Maran and Dayanidhi Maran for their alleged actions in swaying Aortal-Maxis deal, which is connected to the 2G scam. The shares of both Sun TV and SpiceJet have tumbled several times in the stock markets last year because of the alleged involvement of Dayanidhi Maran in the 2G scam.

Acquiring Bombardier Aircrafts

SpiceJet is planning to add eight aircrafts during the current fiscal year. It is planning to add 15 Bombardier Q 400s to its fleet by July 2012. SpiceJet is investing $450 million for the acquisition of the aircrafts with an option to buy another 15 aircrafts at a later date. Merrill Lynch report last year already predicted that SpiceJet will post losses on account of a fall in yields and load factors. Kalanithi Maran said he will inject Rs.130 crore into the airlines to acquire 5% more stake. That will increase his stake in SpiceJet from 38% to 43%.

Poor Services And Huge Compensation To Passengers

SpiceJet tops the list of the airlines in paying compensation to the passengers. All airlines together forked out Rs.66.37 lakhs in July last year. Out of this figure, SpiceJet alone accounted for Rs.31 lakhs. This statistics reveals the poor services of SpiceJet. Indigo Airlines reported a nil figure during this period. Earlier there were reports that the private equity firm TPG was negotiating to acquire a stake in SpiceJet. What happened subsequently to the talks is not known. But SpiceJet denied that these were mere rumours. The promoters have pledged more than 85% of their shares to raise money.

Kapil Sibal Is A Ditching Horse

Investors should refrain from entering into SpiceJet counter even at the current prevailing low prices. The promoters of SpiceJet are politically controversial people. They do not have any influence at the state level. At the central government, no doubt, they have influence with Rahul Gandhi and Kapil Sibal. But it is doubtful whether Kapil Sibal will continue to support the Maran brothers once a court casts aspersions on them. Kapil Sibal is a ditching horse, who cannot be counted on for support. He praised the former telecom minister A Raja sky high and gave a statement that Raja’s actions in the 2G spectrum auctions have not led to any losses for the government. But when the Supreme Court cast aspersions on Raja, Sibal coolly let Raja down and blamed him for all the irregularities. A similar thing will happen for the Maran brothers also.

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