Indian budget carrier SpiceJet Ltd shares have surged more than 300 percent in the past year after surviving a crisis, but SpiceJet chairman Ajay Singh said the best performing airline stock in the world remains undervalued.
SpiceJet’s market capitalization of about 41 billion rupees (US$617.28 million) is too low given the US$5.7 billion valuation for the operator of IndiGo, India’s biggest airline, following its listing this month, Singh said in an interview Monday.
“The gap which exists between SpiceJet and IndiGo will not sustain to this extent for a significant period of time,” he said. “The valuation of the company is out of sync with the market situation and reality. It’s undervalued.”
SpiceJet’s surge in the past 12 months leads the Bloomberg Intelligence Global Airlines Competitive Peers Index, after Singh rescued India’s second-largest budget carrier from near-collapse in December last year.
One obstacle to a higher market worth is that SpiceJet lost 6.9 billion rupees in the fiscal year ended March, while IndiGo’s operator InterGlobe Aviation Ltd made about 13 billion rupees.
“The fact that IndiGo has been making profits year after year, and the poor legacy and stability of the SpiceJet stock, play a vital role in their valuations,” Dubai-based Martin Consulting LLC founder Mark Martin said.
SpiceJet stock climbed 10.5 percent to 68.85 rupees per share on Monday in Mumbai trading, rising for a fifth straight day.
“We came out of a situation when the company was actually shut down in the middle of last December,” Singh said. “We’ve looked at some of the cost elements, tried to bring the cost down. We’ve tried to instill confidence in consumers who’d been badly impacted by cancellations last year.”
When asked about debt, Singh said he expects “total payables” to halve over the next year from about 10 billion rupees currently.
SpiceJet is in talks to buy more than 100 narrow-body aircraft from Boeing Co and Airbus Group SE, as well as more than 50 regional jets from suppliers including Bombardier Inc.
The orders might be finalized this fiscal year, he said.
Indigo’s initial public offering was the first by an Indian airline since 2006. It was a rare bright spot for India’s aviation sector, where fierce competition and elevated jet fuel taxes contributed to a combined US$10 billion of industry losses in the past six years.
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