Aviation stock's target reduced by Elara by 37%: Three worries that investors shouldn't disregard

In a recent report, investment firm Elara Capital has highlighted three main areas of concern for Indian airline SpiceJet: fleet growth, earnings, and Boeing's global operations. Despite these concerns, Elara Capital has maintained its 'Accumulate' rating for SpiceJet, indicating a positive long-term outlook.

The future growth of SpiceJet hinges on a significant increase in its fleet size. This expansion, however, is dependent on stable operations by Boeing globally. The average monthly delivery of commercial aircraft by Boeing has been strong, with 42 deliveries year to date (January-July 2025), compared to 26 in CY24 and 39 in CY25.

SpiceJet has already made strides in fleet expansion, operating an enlarged fleet that includes eight new Boeing 737 aircraft added for the 2025 winter season. This expansion supports new routes and partnerships, such as with Gulf Air, and is expected to continue throughout the year.

However, the delay in fleet addition for SpiceJet is due to engine and aircraft availability issues. This delay has led to a decrease in the target price for SpiceJet's aviation stock from Rs 62 to Rs 39, a decrease of 37%.

The stock price of SpiceJet has seen a downturn, falling 10% in the last five trading sessions and 33% in the last one month. This decline may be due to its poor financial performance and operational challenges, as evidenced by its Q1 loss of Rs 234 crore.

SpiceJet's stock performance has been poor compared to the broader market indices such as the BSE Sensex and Nifty 50. The airline has erased almost 50% investor wealth in the last one year and has underperformed the NSE Small-Cap index in the last three months due to operational losses in Q1 and a delay in fleet addition.

Despite these challenges, Elara Capital cites a stable airfare environment and potential cost reduction as reasons for maintaining its 'Accumulate' rating for SpiceJet. The firm also predicts a high probability that domestic airfares may rise YoY in the second half of FY26 due to recent government reforms.

Elara Capital has revised the EPS estimate for SpiceJet's FY26 to a loss of Rs 8.1, down from a profit of Rs 10.2 previously. The cut in the target price is due to the delay in fleet growth and a subsequent earnings downgrade.

SpiceJet aims to increase its fleet size from 20 to 52 by June 2025. The success of this ambitious plan will be crucial in turning around the airline's fortunes and restoring investor confidence.

In the meantime, other major Indian airlines like InterGlobe Aviation and Tata Group airlines are focusing on fleet renewal, which may lead to nil fleet growth during the first half of CY25. This could present an opportunity for SpiceJet to gain market share if it can overcome its current challenges and successfully expand its fleet.

Aviation stock's target reduced by Elara by 37%: Three worries that investors shouldn't disregard