SpiceJet cuts JP Morgan's chase for better valuation

Troubled budget airline SpiceJet Ltd, which is on recovery path, has declined an investment offer from one of the funds managed by the US-based JP Morgan Chase & Co. Ajay Singh-promoted low-fare carrier says the valuation offered by the MNC does not match up to its expectation. "They (JP Morgan Chase) are interested in investing but Ajay Singh does not want to bring them on board at the present CMP (current market price). He wants to further improve valuation of the company before getting them (JP Morgan Chase) in," a senior company executive told dna.

SpiceJet chief operating officer (COO) Sanjiv Kapoor confirmed there was "investor interest" in the Gurgaon-based airline. "With improving performance of the airline, there is investor interest. Its valuation is also continuously improving under Ajay Singh," he said.

According to sources, the airline needs around Rs 400 crore recapitalisation to fund its aircraft acquisition and pay off its creditors' dues. At present, it is able to almost entirely meet its working capital needs through internal accruals. After Singh took over the no-frill airline, which he has managed to pull out of the jaws of death, from the former promoter Kalanithi Maran, the operational and financial performance of the airline has considerably improved. This has enhanced its valuation.

The airline has not only paid off pending taxes to the government but has also started paying salaries of employees on time. Recently, the airline also settled disputes with aircraft lessors, who had approached the court to get their planes de-registered and returned. Simultaneously, it is also paying off dues to various creditors like airports, oil marketing companies and others.

All this has made its stock price to zoom to over Rs 20 per share from around Rs 13 per share a few months back. On Friday, it closed 2.35% lower at Rs 20.75 per share. The airline will complete 10 years of operation on May 23. It is all set to post operational profit in the first (June) quarter of the current fiscal. Kapoor said profits in the last fiscal were dragged down by early termination of aircraft lease and provision for penalty payment. In all the quarters of FY15, the airline has shown aircraft redelivery as a cost. SpiceJet has yet to announce its fourth quarter and annual results for FY15. In the third quarter of last fiscal, it had reported a net loss of Rs 275 crore.

The airline chief also dismissed speculations of his exit before the completion of his 3-year contract that is attached with a hefty severance package. Contrary to the rumours, Kapoor said he was committed to bringing the airline back to health. "Ajay and I both have a strong joint interest in seeing SpiceJet succeed: Ajay as the founder and now promoter who has come to the rescue of the airline, and me as the person who was brought in to transform the airline, which was well on the transformation path before the delay in funding and legacy liabilities precipitated the crisis that we battled through to deliver the airline back to the founder," he told dna.

According to him, his job at the budget airline was not done yet. "Until SpiceJet is back to profitability and the transformation is complete, the job remains undone. We (the management team and the promoter) are working together, 16 hours a day, seven days a week, to see the airline back to where it once was," he said.

In 2010, Marans had bought 37.7% of the airline's stake at Rs 48 per share and had made mandatory open offer to acquire another 20% stake at Rs 58 per share.