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Jet Airways (India) Ltd.
Initiation
Overweight
JET.BO, JETIN IN
Strong tailwinds
• Initiate with Overweight, PT of Rs1090: Our PT implies 35% upside
potential from current levels. JETIN is the leading private carrier in India
with a domestic market share of 26.2% and also has strong international
operations connecting 24 international destinations.
• Yields accentuated by recovery in premium travel: JETIN is
reconfiguring its seats by adding back premium seats reconfigured to
economy during the FY09 downturn. This is accentuating yields, which
are already trending up in a favorable economic environment – current
domestic yields are still 17% below historical peak levels.
• Jetlite turning around, competitive threat to international
operations abating: Acquired LCC Jetlite (erstwhile Sahara Airlines) is
likely to break even in FY12E aided by restructuring of operations.
International operations, which are highly profitable, are likely to
continue to see strong growth over the next two years - imminent threat
from KAIR has receded with KAIR scaling back on international growth
plans. We estimate EBIDTAR CAGR of 15.8% over FY10-FY13E.
• Balance sheet improving: JETIN has recently restructured its debt,
resulting in annual interest savings of Rs850MM. It is also looking to
sell its land in Mumbai, for which it may receive Rs5-5.5B – a potential
upside trigger not factored into our estimates. We estimate gearing to
decline from 4x in FY10 to 2.6x by FY12E.
• Price target, valuation, key risks: Our Sep-11 PT is based on 8x
FY12E EV/EBITDAR, a 14% premium to its Asian airlines peer group
and a 10% discount to Chinese airlines. We believe the premium to
Asian airlines is justified, given stronger growth prospects, debt
restructuring, and better long-term growth potential offered by the Indian
market. Key risks include slowdown in traffic, increase in aviation fuel
prices, a delay in debt restructuring, and an unfavorable outcome of
litigation with Sahara Group.
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