spicejet ltd share price share price Management discussions

1. Indian Economy and Prospects

Indias economy is one of the fastest-growing in the world, and it has shown considerable resilience amidst global financial crises and downturns. According to International Monetary Fund, India is projected to be the worlds third largest economy by 2027-28 and will hit GDP of USD 5 trillion dollars. India boasts a large and fast-growing domestic consumer market owing to its large population and rising middle-class.

The government is pushing substantial infrastructure projects under schemes like "Make in India", "Digital India", "Smart Cities", and "Atmanirbhar Bharat (Self-reliant India)". These initiatives aim to foster industrial production and improve Indias digital and physical infrastructure, thus enhancing ease of business and attracting foreign investment. India now ranks at 63 in "Ease of Doing Business" from a rank of 142 in 2014. India has been implementing incremental economic reforms, including easing regulations, tax cuts for businesses, liberalizing the FDI policy, and reforms in labor laws and in the long term these initiatives are expected to also boost foreign investments and economic growth, which in turn would have its impacts on the Indian aviation sector.

While India embarks on its next growth trajectory, reducing economic inequality (where the benefits of growth arent distributed evenly across the society), reducing unemployment and better healthcare and education infrastructure needs to be addressed.

The Indian economy has prospects for growth driven by factors such as a large consumer base, increasing urbanization, and a youthful demographic. However, challenges like regulatory complexity, infrastructure gaps, and global economic uncertainties persist. Effective reforms, technological advancements, and sustainable development efforts will contribute to a more resilient and prosperous Indian economy in the future.

2. Indian Aviation

(a) Industry Overview

Aviation is one of the fastest growing sector in India. The need for high-speed movement across the country and outside India facilitates the growth of the sector in India. The rising middle-class high-income population would also result in families undertaking frequent vacations and actively seeking out employment in different parts of the countries. This would facilitate the need for high-speed mobility, for which the answer is aviation sector. .

According to the Ministry of Civil Aviation, air passenger tra_c in India, both domestic and international, witnessed strong recovery in FY_ 2022-23 and registered a growth from 105.4 million passengers in FY 2021-22 to 190.50 million passengers in FY 2022-23, an increase of 80.9%. These growth parameters year on year basis are encouraging however the same is yet to reach the pre-pandemic levels.

Passenger tra3c at a glance	(in Mn)
FY19	204
FY20	202
FY21	62.1
FY22	105.4
FY23	190.6
	Source: DGCA

Despite a strong recovery in the industry, it still faces challenges on account of high ATF prices and depreciation of Rupee against Dollar, which has strong impact on the airline finances. Fuel expenses account for 35-40% of the airlines expenses, while 40-50% the operating expenses – including aircraft lease rentals, fuel expenses in case catering to International sector, and a maintenance expenses – are denominated in Dollar terms. Moreover, airlines in the country have to pay exorbitantly for using airport infrastructure like runways and terminals. Privatization of airports has raised concerns about fee increases. The sector also witnessed privatization of Air India which will further lead to consolidation. The group has plans to merge Air India with Vistara Airlines and Air Asia India. An incumbent airline also made debut "Akasa", a new start up airline. Indian aviation space is presently witnessing a changing landscape and is now home to the largest aircraft order stream consolidated amongst all operating airlines. The Indian aviation market is intrinsically linked to the macro-economy, and hence economic pressures in the nature of looming concerns of a US recession, high inflation in Europe, the impact of the Ukraine situation and Israel-Palestine conflict will all have bearing on the sector. Undoubtedly, variety of global socio-economic events will remain at the forefront of the aviation industrys minds as we look to seek the new and exciting opportunities in 2023-24.

According to the Ministry of Civil Aviation, domestic cargo tra_c in India grew at 15.3% while international cargo growth stood at 7.2% during the year. Further, the proportion of total domestic cargo carried as belly cargo registered positive growth of 2.6% in the FY 2022-23 as compared to last year.

Cargo sector in the country is anticipated to grow strongly on the back of rising need to transport high value & time sensitive products such as electronics, pharmaceuticals, perishable, and auto parts. As per industry estimates, the international air cargo market contributed to 60% of the total aviation revenue in 2022 due to growing needs of transporting goods across border while Asia Pacific air cargo market held more than 30% of the global market share owing to the presence of some of largest and rapidly growing economy.

Indian Cargo sector is expected to boom owing to its strategic location and push from the government. India is set to become a transshipment hub between markets of Asia and Europe which is currently served by Middle East. The cargo market in India is mostly concentrated in Delhi, Mumbai, Bengaluru, and Hyderabad. However, AAI aims to invest USD 3.58 billion in the next 5 years to augment airport facilities and infrastructure to meet set targets and develop transshipment hubs at major airports over the next 6 years. There are at present 21 international and 35 domestic cargo terminals in the country. The government is establishing as many as 33 new domestic cargo terminals by 2024- 2025 for 10 mn tonnes target by 2030.

In conclusion, while the Indian aviation industry has promising prospects, it has its challenges as well, and managing those effectively while capitalizing on available opportunities will determine its successful growth in the future.

(b) Government initiatives

The Government of India has various measures like the New Civil Aviation Policy 2016, the Regional Connectivity Scheme - UDAN, The Drone Policy, NextGen Airport for Bharat (NABH) Nirman scheme, Aircraft Leasing under the GIFT City and extension of Emergency Credit Line Guarantee Scheme by National Credit Guarantee Trustee Company. Traditionally, Indian Carriers have relied on foreign lessors for consummating aircraft financing transactions. Given the opportunity presented by these activities and the lucrativeness of the business, the Government listed "aircraft leases" as a "financial product" under the The International Financial Services Centres of 2019. The availability of operating and financial leases for aircraft/ helicopters and engines of aircraft/ helicopters would help to create a comprehensive ecosystem within the Indian aviation industry.

Earlier under the ECLGS scheme, the amount of funding to eligible borrowers in the Civil Aviation sector was further enhanced to Rs.1500 crore to be allowed only subject to proportionate equity contribution by the promoters/owners).

The Union Budget FY 2023-24 had announcement to revive 50 aircraft landing sites comprising airports, heliports and water aerodromes which is likely to give larger wings to the RCS. The importance of the RCS can be gauged from the fact that the RCS has seen a doubling of allocation in this years Budget since the last allocation and has increased from Rs. 600 crore to Rs. 1,244 crore. These policy initiatives by the government are aimed to make air travel more affordable and widespread which will propel further growth.

3. Developments at SpiceJet

(a) Performance and other development

During the period, the Company consummated restructuring deals with creditors, hived off cargo business into separate subsidiary and infusion of equity from the promoter.

In order to strengthen the Companys financial position and ensure and long-term viability of business, it was approved by the shareholders to permit promoter/ promoter group companies to infuse upto Rs. 500 Crore into the Company under permissible capital raising instruments. The Company has already received the first tranche of the equity from the promoter.

Further, effective April 1, 2023, the Company had hived off its cargo and logistics business SpiceXpress into a separate entity - SpiceXpress and Logistics Private Limited to unlock value for potential for prospective investors. The move resulted in a one-time gain of Rs. 2,555.77 crore for SpiceJet, substantially reducing its negative net worth as a part of overall balance sheet clear up exercise.

Additionally, the Company successfully allotted shares amounting to USD 28.16 Mn. to Carlyle Aviation Partners as a part of the debt swap deal consummated with the lessors. The same lessor has also proposed to acquire compulsorily convertible debentures (CCDs) in SpiceXpress and Logistics Private Limited, aggregating to USD 65.5 Mn. The CCDs will be converted into equity shares of SpiceXpress and Logistics Private Limited at an anticipated future valuation of USD 1.5 Bn or Rs. 12,422 crore.

In terms of Passenger Load Factor (PLF), a measure of capacity utilisation of airlines, for scheduled domestic operations, SpiceJet registered the highest PLF of 88.6% in the industry. SpiceJet also topped the position in terms of international operations with a PLF of (84.9%) followed by Air India (83.1%).

The Company continues to modernize the cost rationalisation measures such as fleet rationalisation, optimising aircraft utilisation, redeployment of capacity in key focus markets, renegotiation of contracts and other costs control measures, to pave the way for long term sustainable profitability.

(b) Brand consolidation

Hot Meals has always been one of the most loved offerings by SpiceJet. The airline took this offering to a whole new level by introducing an exclusive in-flight menu specially curated by globally renowned Michelin-starred chef, Vikas Khanna. Besides adding a whole range of gourmet delights, the proceeds from the sales were utilised towards supporting girl child education in India.

Sustainability is the need of the hour. SpiceJet did its bit towards the environment by introducing biodegradable and recycled meal tray set-ups. For the first time ever, the 44^th Chess Olympiad was held in India. SpiceJet decked a B-737 aircraft with a special livery to commemorate this historic sporting event.

The airline made international travel convenient by introducing online Visa services through its website. Not only that, they also provided lucrative offers on Visa charges based on the booking value. Meanwhile, SpiceJet also launched a taxi service that provided 100% confirmed and sanitised cabs with zero wait time and zero cancellation fee. This service was available for both pre-departure and post arrival travel.

Please also refer to Boards report for more detailed information on developments at SpiceJet.

4. Operational and Financial Highlights

(a) Operational Highlights

(b) Financial Highlights

(i) Total Income (Rs. million)

SpiceJets total income increased by 30% to Rs. 99,148.86 million in FY 2022-23 from Rs. 76,086.41millioninFY2021-22.Revenuefrom operations increased by 35% to Rs. 88,688.40 million in FY 2022-23 from 65,573.27 million in FY 2021-22. Revenue from freighter operations decreased by 68% to Rs. 6,244.52 million in FY 2022-23 from Rs. 19,436.10 in FY2021-22 due to termination of freighter aircraft. Other income decreased by 1% to 10,460.46 million in FY 2022-23 from 10,513.14 million in FY 2021-22.

million in FY 2022-23 from 29,457.78 million in FY 2021-22 primarily on account of increase in operational utilisation and increase fuel cost.

Lease-Rental Aircraft and Engines:

Expenditure on lease rental on aircraft and engines decreased by 37% to 3,755.73 million in FY 2022-23 from 5,919.21 million in FY 2021-22 mainly due to reduction in operation of wet lease aircraft and return of certain aircraft.

Aircraft Maintenance Cost: Expenditure on aircraft maintenance cost increased by 5% to 11,670.97 million in FY 2022-23 from 11,100.21 million in FY 2021-22.

Employee Benefit/Expenses: Employee remuneration and benefits/expenses increased by 19% to 8,438.71 million in FY 2022-23 from 7,087.51 million in FY 2021-22 mainly due to restoration of salary during the year post-pandemic period.

Selling expenses: Selling expenses increased by 87% to 2,278.11 million in FY 2022-23 from 1,220.49 million in FY 2021-22 with an increase in operations and a strong rebound in the business post-pandemic.

Other expenses: Other expenses increased by 21% to 6,462.02 million in FY 2022-23 from 5,360.99 million in FY 2021-22. (Excluding forex exchange loss of 6,781.51 million in FY 2022-23 and 2,621.83 million in FY 2021-22)

Finance Cost: Finance Cost marginally increased by 5% to 5,056.51 million in FY 2022-23 from 4,825.79 million in FY 2021-22.

Depreciation and amortization: Depreciation and amortization decreased by 21% to 10,193.64 million in FY 2022-23 from 12,897.32 million in FY 2021-22 mainly due to termination of certain long-term aircraft leases.

(c) Key Financial Ratios

Particulars	FY 2022-23	FY 2021-22	Remarks
Debtors Turnover Ratio	43.90	21.98	The increase in ratio is attributable to the significant increase in revenue from operations and decrease in average trade receivables.
Inventory Turnover Ratio	0.60	0.40	The increase in ratio is attributable to the significant increase in revenue from operations.
Interest Coverage Ratio	(0.02)	0.03	The decrease in ratio is attributable to the decrease in EBITDA by 155%
Current Ratio	0.22	0.25	The decrease in ratio is due to significant increase in current liabilities as compared to decrease in current Assets.
Debt Equity Ratio	(2.27)	(1.94)	The increase in ratio attributable to the significant decrease in negative net worth as compared to Debt.
Operating Profit Margin	16%	12%	The increase in ratio is attributable to increase in revenue by 35% as compared to increase in expense by 28%.
Net Profit Margin	(15)%	(23)%	The variance in ratio is attributable to the increase in total income by 30% as compared to increase in cost by 23%

(d) Segment wise information

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Particulars		Quarter ended		Year ended	Year ended
	(Audited)	(Unaudited)	(Audited)	(Audited)	(Audited)
	31-Mar-23	31-Dec-22	31-Mar-22	31-Mar-23	31-Mar-22
Segment revenue
a. Air transport services	20,912.96	22,020.13	14,826.03	82,728.50	46,340.40
b. Freighter and logistics services	595.69	1,196.21	3,891.64	6,244.52	19,436.10
c. Elimination	(60.08)	(70.32)	(60.65)	(284.62)	(203.23)
Total	21,448.57	23,146.02	18,657.02	88,688.40	65,573.27
Segment results
a. Air transport services	373.52	950.63	(4,730.71)	(15,338.88)	(16,940.18)
b. Freighter and logistics services	(204.93)	117.60	150.99	308.72	460.11
(Loss)/profit before exceptional items	168.59	1,068.23	(4,579.72)	(15,030.15)	(16,480.07)
Exceptional items:
a. Air transport services					(774.58)
b. Freighter and logistics services
(Loss)/profit after exceptional items	168.59	1,068.23	(4,579.72)	(15,030.15)	(17,254.65)
Segment assets
a. Air transport services	102,361.27	81,098.08	93,408.45	102,361.27	93,408.45
b. Freighter and logistics services	647.22	894.14	1,795.30	647.22	1,795.30
Total Assets	103,008.49	81,992.22	95,203.75	103,008.49	95,203.75
Less: Adjustment through slump sale	(210.75)			(210.75)	-
Net assets	102,797.74	81,992.22	95,203.75	102,797.74	95,203.75
Segment liabilities
a. Air transport services	133,944.04	138,701.87	136,798.74	133,944.04	136,798.74
b. Freighter and logistics services	1,396.48	1,296.37	1,289.33	1,396.48	1,289.33
Total liabilities	135,340.52	139,998.24	138,088.07	135,340.52	138,008.07
Less: Adjustment through slump sale	(226.70)	-	-	(226.70)	-
Net liabilities	135,113.82	139,998.24	138,088.07	135,113.82	138,088.07

(e) Change in net worth

Particulars	FY 2022-23	FY 2021-22	Remarks
Net (loss)/profit	(15,030.15)	(17,254.65)	There is an increase in net worth due to increase in assets and decrease in liabilities as compared to previous financial year.
Net worth	(32,316.07)	(42,884.32)
Total assets	102,797.74	95,203.75	Further, the loss for the year ending March 2023 has also decreased which result in increase in net worth.
Total liabilities	135,113.81	138,088.07
Return on net worth	(46.51%)	(40.24%)

5. Opportunities, Risks, Concerns and Threats:

Outplaying the threats looming post out-break of covid, the airline industry is rapidly growing as increasing numbers of Indians become able to a_ord air travel. With the Indian government investing heavily in improving airport infrastructure across the country, SpiceJet can leverage this to offer flights to destinations previously uncharted on its own and also through development of international alliances to expand its international footprint and increase customer base. While there are many opportunities for growth, the fluctuating oil prices and depreciating domestic currency can significantly impact profitability as was evident from Russia-Ukraine war. Further, economic downturns may impact discretionary spending power of many consumers leading to reduction in demand for air travel. The airline industry is highly competitive and capital-intensive and having a long term delivery stream for fuel efficient aircraft is key to future growth. With supply chain issue being faced by the manufacturers and increased financing costs the a_ordability of air travel can get impacted which will ultimately impact revenue. Further, any aggressive marketing strategy or enhanced services by competitors at reduced pricing may impact our market shares.

6. Future Outlook for SpiceJet

Despite the challenges posed by the Covid-19 pandemic, surge in crude prices, rupee depreciation and geopolitical uncertainity, India is currently the third-largest domestic civil aviation market in the world, which is a testament to both the vitality and potential of this market as well as to the inherent strengths of the Indian aviation industry: adaptability, agility, and innovation. The rapid urbanization and growing middle class in India indicate a large potential market for SpiceJet to capture. Rising disposable income within Indias populous demographic brings promising prospects for future growth. Further, expansions into tier 2 and tier 3 cities could provide more growth opportunities. The governments pro-aviation policies such as UDAN (Ude Desh ka Aam Naagrik) are aimed to make flying more affordable and widen the aviation network across the country. These reforms can offer more routes and potential growth, with SpiceJet being one of the leading regional operators We remain encouraged with the double digit tra_c growth and our outlook for the next year would continue to induct more cost efficient Boeing 737 MAX aircraft, unground the grounded aircraft in the fleet and optimize the existing cost structure. With fresh capital infusion underway, we hold a positive outlook and the management of the Company will be taking effective steps to overcome the present challenges, capitalise on emerging opportunities and reestablish itself as more efficient passenger airline with highest level of customer satisfaction.

7. Internal Controls

The internal control framework of the Company is commensurate with the size and complexity of its operations and has been designed to provide reasonable assurance regarding the following:

Effectiveness and efficiency of operations

Adequacy of safeguarding of assets

Prevention and detection of frauds and errors

Accuracy and completeness of the accounting records

Timely preparation of reliable financial information An independent internal audit is carried out to ensure the adequacy of the internal control system and adherence to policies and practices. The scope of the internal audit activity is guided by the internal annual audit plan, which is approved by the Audit Committee of the Board. The Audit Committee reviews the reports submitted by the independent internal auditor and takes appropriate action.

8. Human Resources

SpiceJet stands firm in its belief that Human Resources (HR) are pivotal drivers of transformation within the organization. Emphasizing individual growth in a professional setting, the company fosters a culture conducive to innovation, empowerment, and exceptional performance. HR serves as a cornerstone in SpiceJets journey toward a digitally empowered, forward-looking entity, recognizing that nurturing talent through upskilling and empowerment is pivotal for groundbreaking accomplishments and sustained market leadership. In its pursuit of readiness for the future, SpiceJet is optimizing its processes, digitizing HR functions to enhance employee interaction and efficiency. The organization has long championed experiential learning and offers diverse training programs aligned with a robust competency framework. This framework is seamlessly integrated into various HR processes, ensuring clarity in job roles and fostering a transparent performance evaluation system. SpiceJet takes immense pride in being an equal opportunity employer and fostering a workplace that champions gender equality. Upholding a zero-tolerance policy for sexual harassment, the company prioritizes a secure environment for all employees, providing regular training on sexual harassment prevention. Additionally, SpiceJet actively encourages employee participation in CSR initiatives, collaborating with reputable NGOs, thereby contributing to the welfare of the underprivileged and the environment.

The organization is dedicated to propelling employee career advancement while cultivating an inclusive environment where everyone feels valued. Throughout FY 2022-23, SpiceJet continued its commitment to excellence in HR management, reinforcing its status as an employer of choice. Initiatives were directed at attracting and retaining top talent, alongside health management strategies amidst pandemic challenges, demonstrating the companys investment in holistic employee development.

Striving to be a leading employer in the industry, SpiceJet fosters a collaborative, transparent, and participatory culture, recognizing and rewarding individual contributions and innovative thinking. While the previous fiscal year focused on resource consolidation due to pandemic-induced hiring constraints, the companys HR management persistently aims to guide employees toward their future, not just for the benefit of customers but for their personal growth as well.

Furthermore, SpiceJet places utmost importance on diversity and inclusion, recognizing the richness brought by diverse perspectives and backgrounds. The company actively promotes an environment where differences are celebrated, ensuring equitable opportunities for all employees to thrive and contribute their best.

9. Information Technology

During this time SpiceJet continued its investment in cloud, data and enhanced data security while also enhancing and producing innovative solutions launched last year.

Keeping in mind our increased data requirements, need for enhanced IT security, geographically distributed backups and access to AI hardware and big data services, we have made significant progress in moving the data and IT infrastructure to a public cloud platform from our current captive/managed cloud solution.

We continued to enhance our data hub with data from all our IT platforms including operational DFDR data and data from the flight operations software. We also enabled big data techniques to process the large amount of DFDR data from each flight. This has enabled us to take the flight safety software developed by us to production and send out automated reports of safety related performance for each flight to the pilots and management teams.

We also continued to enhance our revenue management software with better visibility to the revenue teams on the predicted load and RASK for each flight being made available to them starting 60 days in advance and allowing for the revenue team to actively manage load and revenue for each flight in the system.

Our innovative web based departure control software developed last year was enhanced and put in operation at a few airports.

We rolled out SpiceTag which is our in-house software for cargo management that enables on-boarding of multiple kinds of partners, customers onto the platform and automates the entire cargo operations process. This software is currently in testing by the SpiceXpress team and should replace 3rd party software that is currently being used. SpiceTag is superior in functionality to the 3rd party software and supports both Airport To Airport and Door to Door cargo operations. It will help us to reduce cost while increasing efficiencies and automation.

SpiceJet believes that its innovative products and technologies give it a competitive edge while enhancing safety and efficiency of its operations.