SpiceJet Gets A Lifeline, Mumbai-Based Business Power Couple Harihara And Preeti Mahapatra Inject Vital Funds Rs 1,100 Crore Into SpiceJet

Mumbai-based entrepreneur Harihara Mahapatra, along with his wife Preeti, is set to invest Rs 1,100 crore in SpiceJet, securing a substantial 19% stake in the airline. 

Notably, Aries Opportunities Fund and Elara Capital are also part of this funding initiative, with holdings of 3% and 8%, respectively, post the conversion of warrants, as detailed in the funding proposal.

Last week, SpiceJet, grappling with financial challenges, revealed a much-needed lifeline as various funds and high-net-worth individuals committed to investing Rs 2,254 crore. The infusion is planned through the issuance of up to 130 million convertible warrants and 320.8 million fresh equity shares.

Upon shareholder approval for the issuance of equity and warrants, the current shareholding of promoter Ajay Singh in the airline is anticipated to decrease from 56.49% to a minimum of 38.55%. Notably, 37.9% of Singh’s stake is currently pledged with various banks.

Who Is This Power Couple

Harihara Mahapatra and his wife serve as promoters of Mahapatra Universal Limited, a Mumbai-based conglomerate engaged in diverse sectors such as real estate, infrastructure, consulting, consumer, and retail. 

In the past, Preeti Mahapatra contested as an independent candidate in the 2016 Rajya Sabha election, supported by the Bharatiya Janata Party against Congress leader Kapil Sibal.

How Will The Funds Be Utilized

SpiceJet will utilize the allocated Rs 2,241.5 crore from the recent investments to address statutory obligations like Tax Deducted at Source (TDS), Goods and Services Tax (GST), Provident Fund (PF), among others. 

Additionally, the funds will be allocated to settle outstanding dues with creditors, reintegrate grounded aircraft, acquire new planes, cover aviation turbine fuel costs, pay employee salaries, and meet general corporate requirements.

Ajay Singh, SpiceJet’s promoter, emphasized that this investment will enable the airline to introduce new capacity, alleviate liabilities incurred during the Covid-19 pandemic, and instill confidence in lessors and vendors. 

With past capital infusions carrying a high cost, SpiceJet aims to address unpaid statutory dues, particularly TDS and other taxes, which have accrued interest. 

The fundraising initiative is expected to significantly reduce the airline’s interest burden and help in restructuring its short-term liability of Rs 6,000 crore, including Rs 550 crore in statutory dues and around Rs 4,200 crore owed to aircraft lessors.

More Details

SpiceJet, facing financial constraints, received a significant lifeline with an investment infusion of Rs 2,254 crore from a diverse group of funds and high net worth individuals. 

The strategic move involves the issuance of 130 million convertible warrants and 320.8 million fresh equity shares, attracting participation from 64 investors, including noteworthy contributors such as Elara India Opportunities Fund, Aries Opportunities Fund, Prabhudas Lilladher, Nexus Global, and Mumbai-based businessman Harihara Mahapatra, alongside Arjun Juneja of Mankind Pharma.

The shares, priced at Rs 50 each, present an opportune investment, especially considering that the airline’s shares closed at Rs 58.04 at the end of market hours on Tuesday. 

According to Amisha Vora, Chairperson & MD of Prabhudas Liladher group, this injection of funds comes at a pivotal time for the airline industry in India, capitalizing on the booming air travel sector and the potential for SpiceJet to increase its market share.

The proposed fund infusion is anticipated to bolster the airline’s product presence and market reach significantly. The capital raised is earmarked for vital operational expansion initiatives, including fleet enhancement, route network expansion, and technological advancements, ensuring a solid financial foundation.

Looking ahead, SpiceJet is poised to engage in discussions with Boeing for the resumption of the induction of over 200 new 737 Max aircraft. 

This move aligns with the airline’s strategy to address its capital needs, considering the high cost associated with previous fund infusions and the outstanding statutory dues, including TDS and other taxes, which have accrued interest. 

Ajay Singh stated that this fundraising initiative will play a crucial role in settling these dues, significantly alleviating the interest burden and facilitating SpiceJet’s financial restructuring.

SpiceJet’s Financial Woes As Operational Challenges Linger

As SpiceJet grapples with financial distress, a concerning revelation emerges that at least two out of every five of its planes remain grounded, pointing to more than just a cash crunch. 

Mumbai-based investment advisor Nuvama has expressed apprehensions about the airline’s operations, citing a “lack of transparency” in crucial operational data.

 Despite an improved share price target of ₹52, the airline faces mounting challenges, with Nuvama’s concerns echoing the broader uncertainties surrounding SpiceJet’s current predicament.

Analysis of Operational Data

Nuvama’s ‘Hold’ rating on SpiceJet is accompanied by an observation that the airline, while occupying 87% of its seats, struggles with transparency in operational reporting. 

The revised share price target of ₹52, though higher than its previous estimate, still falls short of the current market price of ₹56.94 as of December 13. This disparity raised questions about the true health of SpiceJet’s operational and financial landscape.

Operational Performance Amid Market Dynamics

SpiceJet’s operational performance offers a mixed picture, despite occupying 87% of its seats and demonstrating an 8% growth in passenger yield, outpacing its peers, the airline lags significantly behind in terms of market share. 

With only a 4.4% market share as of August 2023, SpiceJet trails behind industry giants like IndiGo, Air India, and Vistara. The future growth trajectory for SpiceJet hinges on expanding its seat capacity, a challenge aggravated by the fact that 40% of its fleet remains grounded.

Fleet Expansion and Operational Challenges

In an effort to rejuvenate its operations, SpiceJet added five new planes to its fleet in November 2023. However, Nuvama highlights that a substantial 40% of the airline’s fleet continues to be grounded, signaling persistent operational challenges. 

With a fleet comprising 91 aircraft as of September 2023, SpiceJet faces uncertainties about whether this figure includes the grounded planes, contributing to the lack of clarity surrounding its overall operational capacity.

The Last Bit, The infusion of Rs 1,100 crore by the Mahapatra couple, alongside other investors, marks a turning point for SpiceJet. 

As the airline navigates the complex terrain of financial restructuring, settling liabilities, and rekindling growth, with an eye on the future, this investment not only shores up SpiceJet’s immediate financial concerns but also positions it for renewed strength and stability in the dynamic aviation sector.

However, SpiceJet will have to work on its operational challenges, symbolized by a significant portion of its fleet remaining grounded. 

The airline’s efforts to regain stability through fleet expansion highlight its uphill battle to regain market share. 

As stakeholders closely monitor the unfolding situation, the lack of transparency in operational data remains a key concern.