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Jet Airways
Demand drivers intact
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Domestic demand momentum strong
Jet Airways has maintained its market leadership in the Indian domestic market
with 25.4% market share. Jet expects domestic demand to remain strong at ~15%
growth for FY12. It expects to show strong 16% CAGR in domestic passenger
traffic over FY10-12.
Concerns on domestic overcapacity overdone
Investor concerns regarding overcapacity in the domestic segment are largely
overdone. They expect the fleet size of Indian carriers to increase by ~12% (30-32
aircrafts) over FY12. In the domestic segment, Indigo & SpiceJet are expected to
add 8-10 planes each, Jet and Kingfisher are expected to add 4-5 aircrafts.
International business: on a higher plane
Jet has built a very strong business franchise over the past few years and is
increasingly becoming a network player in the region. Jet has focused on short
haul routes in the select SAARC, ASEAN & Middle East which have started acting
as feeder routes for the long haul US/UK routes due to the lack of any strong
national carrier in these regions. It expects to show a ~13% CAGR in international
traffic over FY10-12. International yields are expected to improve on the back of
recovery in premium traffic. New routes launched in FY11 are expected to reach
break-even faster than originally expected.
ATF prices playing spoilsport; but still manageable
Rising ATF price is one of the key risks ahead for the industry. However, Jet
expects the current ATF price to be still manageable. In order to pass on the
$10/bbl increase (from $100/bbl) in ATF price, Jet considers it needs to increase
average fares by ~Rs250. Jet has already increased the fuel surcharge by Rs100-
200 per ticket. It has also partly shifted its Jet Konnect capacity to Jet Airways full
service capacity. Going forward higher premium capacity would enable Jet to
manage their yields in a better way in a rising crude scenario.
Price objective basis & risk
Jet Airways (JTAIF)
Our PO of Rs750 is based on 8x FY12E EV/EBITDAR. We value the stock at
mid-cycle multiple, which is consistent with regional airlines. At our PO, the stock
would trade at 2x P/BV, largely in line with regional peers. Downside risks to our
price objective: Rising fuel costs and an increase in competition. Upside risks
would be a decline in fuel prices and faster-than-expected economic recovery.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jet Airways
Demand drivers intact
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„Domestic demand momentum strong
Jet Airways has maintained its market leadership in the Indian domestic market
with 25.4% market share. Jet expects domestic demand to remain strong at ~15%
growth for FY12. It expects to show strong 16% CAGR in domestic passenger
traffic over FY10-12.
Concerns on domestic overcapacity overdone
Investor concerns regarding overcapacity in the domestic segment are largely
overdone. They expect the fleet size of Indian carriers to increase by ~12% (30-32
aircrafts) over FY12. In the domestic segment, Indigo & SpiceJet are expected to
add 8-10 planes each, Jet and Kingfisher are expected to add 4-5 aircrafts.
International business: on a higher plane
Jet has built a very strong business franchise over the past few years and is
increasingly becoming a network player in the region. Jet has focused on short
haul routes in the select SAARC, ASEAN & Middle East which have started acting
as feeder routes for the long haul US/UK routes due to the lack of any strong
national carrier in these regions. It expects to show a ~13% CAGR in international
traffic over FY10-12. International yields are expected to improve on the back of
recovery in premium traffic. New routes launched in FY11 are expected to reach
break-even faster than originally expected.
ATF prices playing spoilsport; but still manageable
Rising ATF price is one of the key risks ahead for the industry. However, Jet
expects the current ATF price to be still manageable. In order to pass on the
$10/bbl increase (from $100/bbl) in ATF price, Jet considers it needs to increase
average fares by ~Rs250. Jet has already increased the fuel surcharge by Rs100-
200 per ticket. It has also partly shifted its Jet Konnect capacity to Jet Airways full
service capacity. Going forward higher premium capacity would enable Jet to
manage their yields in a better way in a rising crude scenario.
Price objective basis & risk
Jet Airways (JTAIF)
Our PO of Rs750 is based on 8x FY12E EV/EBITDAR. We value the stock at
mid-cycle multiple, which is consistent with regional airlines. At our PO, the stock
would trade at 2x P/BV, largely in line with regional peers. Downside risks to our
price objective: Rising fuel costs and an increase in competition. Upside risks
would be a decline in fuel prices and faster-than-expected economic recovery.
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