The smallest sector in the Indian equity market currently is aviation. Just like the domestic markets, the aviation space in 2019 went through a turbulent ride, especially after the exit of Jet Airways. The rise in crude oil prices and engine issues in Pratt &Whitney (P&W) also resulted in some cooling off from IndiGo and SpiceJet's shares.

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On April 17, 2019, Jet Airways caught all the limelight when its' operations got shut and all flights were suspended effectively. On the same date, the airlines took-off its last flight from Mumbai to Amritsar. With $1.2 billion debt, the company saw no funds coming their way and eventually slid into bankruptcy proceedings.

After the shutdown of India’s oldest private airlines, IndiGo and SpiceJet rejoiced the occasion and took over Jet’s slots. However, things didn’t really fall into place for both the airlines as they currently stare at an earnings loss.

Also Read> Jet Airways: These are the airlines that benefitted the most from its demise

On a year-to-date basis (YTD), SpiceJet's shares rose only 6 percent while IndiGo saw returns of about 11 percent.

Talking about the whole sector, there are currently seven operating airlines in India, which saw a 44 percent year-on-year (YoY) rise in net income during the July-September quarter this year. Profit after tax during Q2FY19 saw a jump of 78 percent YoY to Rs 1,369 crore despite all the concerns surrounding this space.

However, the same did not happen in the case of SpiceJet and IndiGo, the net profit of both the listed entities stood negative in the second quarter of FY20. InterGlobe Aviation’s sales in Q2FY20 rose 31 percent YoY but net profit plunged 63 percent YoY to the loss of Rs 1,066 crore. In the case of SpiceJet, the sales surged 52 percent YoY, while the net profit slipped 19 percent to the loss of Rs 462.58 crore.

Comparing the earnings of both these stocks, IndiGo still seems to be standing at a higher ground as compared to SpiceJet, as its market capitalisation ( Rs 50,000 crore) is the highest in the industry. However, the current key negatives of the stock are a tussle between the IndiGo promoters, earnings slow down and DGCA’s scrutiny in P&W engines that have resulted in the stock to slip 30 percent since September 30.

Edelweiss in its report said, “The valuations are comfortable at SpiceJet v/s IndiGo. With Indigo’s domestic demand moderating, competitive pressures have started to emerge, leading to softer yields. We expect its capacity growth to moderate to 24 percent in FY20 as demand slackens. On the other hand, we expect SpiceJet to be a larger beneficiary in FY21 as the efficient B-737 is being inducted.”

Motilal Oswal also maintained a ‘neutral’ rating on IndiGo considering the recent spate of conflicts between the promoters and DGCA’s direction on grounding all A320neos with unmodified P&W engines.

First Published:Dec 24, 2019 4:12 PM IST