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Jet Airways (JETIN)
Others
Almost in line. Jet reported 3QFY11 consolidated EBITDA at Rs6.68 bn (+31% yoy,
+56% qoq) vs our estimates at Rs6.95 bn. The major reason for the slight
disappointment is lower-than-estimated profitability of the international segment led by
lower-than-estimated PLF (80.5% vs our estimates at 82.5%). The domestic business
performed slightly better than our expectations. We maintain BUY with a target price of
Rs850 (Rs1,220 previously).
Almost in-line results – PAT lower on account of higher tax rate
Jet reported consolidated revenues for 3QFY11 at Rs39.6 bn (+20% yoy, +14% qoq) which was
exactly in line with our estimates. The marginal underperformance of international segment was
balanced by slight outperformance of domestic segment. The reported PAT at Rs1.44 bn was
lower than our estimates at Rs1.79 bn led by higher-than-estimated tax rate (41% including
deferred tax vs our estimates at 20%).
Yields were buoyant in the quarter, as expected; EBITDA margins highest in the past 5 years
Yield (rev. per RPKM) in the domestic segment (SA) increased qoq from Rs4.84 to Rs5.69 in
3QFY11 (+17.5% qoq). Such a high sequential increase would be on account of both higher
pricing and mix improvement (company has been increasing the proportion of business class seats).
Yields increased by 8% and 3.7% qoq in Jet Lite and international operations, respectively. Led by
buoyant yields, the company posted the highest consol. EBITDA margin (17%) in its 5-year history.
4QFY11E expected to be weak – would be difficult to pass on higher costs
We expect weak 4QFY11E as there would be limited ability to increase prices to manage higher
costs led by higher fuel prices and depreciating currency on account of: (1) Air India has recently
dropped ticket prices (Exhibits 8 and 9 ) across the board in a bid to gain market share. We see
other airlines also following the lead to protect their turf, and (2) it is a seasonally weaker quarter.
Reduce our estimates; maintain BUY with a target price of Rs850 (Rs1,220 previously)
We are reducing our earning estimates to factor in: (1) Higher crude oil price. Our crude oil
assumptions are $90/bbl and $93/bbl for FY2012E and FY2013E, respectively, and (2)
Depreciating currency. We are modeling Rs/US$ exchange rate at Rs46 and Rs46, against our
earlier estimates at Rs44.5 and Rs44.5 for FY2012E and FY2013E, respectively. Notwithstanding
the headwinds on account of flaring crude prices and depreciating currency, we maintain our BUY
rating as we are bullish on the prospects of the industry on account of demand-supply balance in
the industry which is likely to sustain in the next two years led by capacity additions, which would
lag the growth in demand. Our new target price is Rs850 (Rs1,220 previously).
Air India playing spoilsport – 4QFY11E yields to be under pressure
Air India has dropped ticket prices across the board in a bid to gain market share. Some part
of this reduction is also due to the fact that 4th quarter is a seasonally weaker quarter as
compared to the 3rd quarter. This has been a surprise to us as we were not expecting the
player with the weakest cost position to take a lead in reducing prices in a seasonally weak
quarter. At this point of time we are unable to comment on whether Air India will persist
with its lower pricing in the future or not. But this move by Air India would reduce the ability
of the airlines to pass on higher costs led by rupee depreciation and higher oil prices in
4QFY11E.
Change in estimates
We are changing our estimates to account for:
Higher crude oil price. Our crude oil assumptions are $90/bbl and $93/bbl for FY2012E
and FY2013E, respectively. In terms of domestic rate of jet fuel, our assumptions are at
Rs42.2/lit and Rs43.5/lit for FY2012E and FY2013E, respectively. The current spot price of
jet fuel is ~Rs50/lit. We would note that airlines typically get discounts on fuel from the
OMCs in the range of 10-12% (on cash payments). So, effectively the current spot rate
for jet fuel in India for airlines would be ~Rs44/lit. We note that in case fuel prices
average more than our assumptions for FY2012E and FY2013E, part of the negative
impact would be absorbed by yields which would be higher than our assumptions. We
don’t see airlines passing on full impact of higher fuel prices by increasing ticket prices
hereon.
Currency. We are modeling Rs/US$ exchange rate at Rs45.5 and Rs44, against our earlier
estimates at Rs44.5 and Rs44.5 for FY2012E and FY2013E, respectively. Almost ~65% of
the total costs of an airline are denominated in dollars. Therefore, the impact of
depreciating currency is very high on profitability.
We maintain our BUY rating with a target price of Rs850 (Rs1,220 previously)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jet Airways (JETIN)
Others
Almost in line. Jet reported 3QFY11 consolidated EBITDA at Rs6.68 bn (+31% yoy,
+56% qoq) vs our estimates at Rs6.95 bn. The major reason for the slight
disappointment is lower-than-estimated profitability of the international segment led by
lower-than-estimated PLF (80.5% vs our estimates at 82.5%). The domestic business
performed slightly better than our expectations. We maintain BUY with a target price of
Rs850 (Rs1,220 previously).
Almost in-line results – PAT lower on account of higher tax rate
Jet reported consolidated revenues for 3QFY11 at Rs39.6 bn (+20% yoy, +14% qoq) which was
exactly in line with our estimates. The marginal underperformance of international segment was
balanced by slight outperformance of domestic segment. The reported PAT at Rs1.44 bn was
lower than our estimates at Rs1.79 bn led by higher-than-estimated tax rate (41% including
deferred tax vs our estimates at 20%).
Yields were buoyant in the quarter, as expected; EBITDA margins highest in the past 5 years
Yield (rev. per RPKM) in the domestic segment (SA) increased qoq from Rs4.84 to Rs5.69 in
3QFY11 (+17.5% qoq). Such a high sequential increase would be on account of both higher
pricing and mix improvement (company has been increasing the proportion of business class seats).
Yields increased by 8% and 3.7% qoq in Jet Lite and international operations, respectively. Led by
buoyant yields, the company posted the highest consol. EBITDA margin (17%) in its 5-year history.
4QFY11E expected to be weak – would be difficult to pass on higher costs
We expect weak 4QFY11E as there would be limited ability to increase prices to manage higher
costs led by higher fuel prices and depreciating currency on account of: (1) Air India has recently
dropped ticket prices (Exhibits 8 and 9 ) across the board in a bid to gain market share. We see
other airlines also following the lead to protect their turf, and (2) it is a seasonally weaker quarter.
Reduce our estimates; maintain BUY with a target price of Rs850 (Rs1,220 previously)
We are reducing our earning estimates to factor in: (1) Higher crude oil price. Our crude oil
assumptions are $90/bbl and $93/bbl for FY2012E and FY2013E, respectively, and (2)
Depreciating currency. We are modeling Rs/US$ exchange rate at Rs46 and Rs46, against our
earlier estimates at Rs44.5 and Rs44.5 for FY2012E and FY2013E, respectively. Notwithstanding
the headwinds on account of flaring crude prices and depreciating currency, we maintain our BUY
rating as we are bullish on the prospects of the industry on account of demand-supply balance in
the industry which is likely to sustain in the next two years led by capacity additions, which would
lag the growth in demand. Our new target price is Rs850 (Rs1,220 previously).
Air India playing spoilsport – 4QFY11E yields to be under pressure
Air India has dropped ticket prices across the board in a bid to gain market share. Some part
of this reduction is also due to the fact that 4th quarter is a seasonally weaker quarter as
compared to the 3rd quarter. This has been a surprise to us as we were not expecting the
player with the weakest cost position to take a lead in reducing prices in a seasonally weak
quarter. At this point of time we are unable to comment on whether Air India will persist
with its lower pricing in the future or not. But this move by Air India would reduce the ability
of the airlines to pass on higher costs led by rupee depreciation and higher oil prices in
4QFY11E.
Change in estimates
We are changing our estimates to account for:
Higher crude oil price. Our crude oil assumptions are $90/bbl and $93/bbl for FY2012E
and FY2013E, respectively. In terms of domestic rate of jet fuel, our assumptions are at
Rs42.2/lit and Rs43.5/lit for FY2012E and FY2013E, respectively. The current spot price of
jet fuel is ~Rs50/lit. We would note that airlines typically get discounts on fuel from the
OMCs in the range of 10-12% (on cash payments). So, effectively the current spot rate
for jet fuel in India for airlines would be ~Rs44/lit. We note that in case fuel prices
average more than our assumptions for FY2012E and FY2013E, part of the negative
impact would be absorbed by yields which would be higher than our assumptions. We
don’t see airlines passing on full impact of higher fuel prices by increasing ticket prices
hereon.
Currency. We are modeling Rs/US$ exchange rate at Rs45.5 and Rs44, against our earlier
estimates at Rs44.5 and Rs44.5 for FY2012E and FY2013E, respectively. Almost ~65% of
the total costs of an airline are denominated in dollars. Therefore, the impact of
depreciating currency is very high on profitability.
We maintain our BUY rating with a target price of Rs850 (Rs1,220 previously)
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