Shares of cash-strapped airline SpiceJet were muted on Thursday after global brokerage HSBC took a bearish view of the company’s outlook.

What Happened: HSBC had a “reduce” call for the stock whit it cut the target price to ₹26, which represents a 58% downside from its current market price of ₹62.

The airline plans to raise ₹3,000 crore through a qualified institutional placement, but there are concerns that the funds might be used to cover ongoing losses and meet working capital requirements due to the current shortage of aircraft, the brokerage noted, dashing investors’ hopes. Earlier, the airline’s stocks rallied on the news of fresh infusion of funds.

The lacks of visibility on capacity growth and profitability also contributed to HSBC’s bearishness. With significant debt and just a 3% market share, the brokerage believes SpiceJet's current valuation is too expensive.

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The low-cost carrier has been making headlines lately for a slew of operational hinderances. Earlier this week, Delhi International Airport Ltd (DIAL), which operates the Indira Gandhi International Airport, has reportedly requested SpiceJet to settle its outstanding dues as soon as possible.

At the end of last month, the Directorate General of Civil Aviation put the airline under enhanced surveillance with increased spot checks and night-time surveillance to ensure operational safety. This is the second the time the airline has come under the scrutiny of the regulator.

Last year, the DGCA imposed heightened surveillance on SpiceJet due to reports indicating that the airline was experiencing financial difficulties.

Separately, SpiceJet has also temporarily placed 150 cabin crew members on furlough for three months due to the "slow travel season and reduced fleet size". The airline has been making losses for the past six years and is now reportedly struggling to pay employee salaries.

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