On Monday, HSBC (LON:HSBA) revised its stance on SpiceJet Ltd (SJET:IN) stock, downgrading the airline from Hold to Reduce, while simultaneously increasing the price target to INR53.00, up from the previous INR42.00.
The decision was influenced by the company's stock price surge post-fund raising activities, which did not translate into the addition of new aircraft to its fleet - a move deemed critical for SpiceJet's competitive edge in the market.
The financial institution highlighted concerns over the airline's operational strategies. Despite securing additional funds, SpiceJet has not expanded its aircraft fleet, which is essential for maintaining and improving its market position. This lack of fleet expansion could potentially hinder the airline's growth and ability to meet the demands of the competitive aviation industry.
Adding to the airline's challenges, HSBC pointed out the vulnerability of the aviation sector to fluctuations in oil prices. The ongoing geopolitical tensions in the Middle East pose a significant risk of increasing oil costs. Such a scenario would impact the entire industry but could be particularly detrimental for SpiceJet, given its current situation.
The updated price target of INR53.00 represents a shift in HSBC's valuation of SpiceJet, despite the downgrade in rating. This new target suggests a recalibration of the expected share value in light of the recent developments and the overall financial health of the company.
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