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�� Revenue in line; deferred tax lowers PAT
Jet Airways (JAL) registered Q3FY11 standalone sales of INR 34.7 bn (our
estimate INR 35.9 bn), an increase of 20% Y-o-Y and 12% Q-o-Q. The company
reported EBIDTAR and EBIDTA margin of 24.5% and 18.2%, respectively, for the
quarter. EBIDTA of INR 6.3 bn was 18.5% lower than our estimate as operating
expenses were higher than estimated. We were also building in sequentially lower
interest costs as the company had converted INR 22 bn of INR debt into USD
denominated debt, whereas it reported flat numbers. The quarter also includes an
unexpected deferred tax liability of INR 1 bn. Management has indicated the
~50% tax provision to be a one-time provision and has guided for 33% tax rate
on ongoing basis. JetLite reported EBIDTAR margin of 22.4%, EBIDTA margin of
7.2%, and PAT margin of 5.3%.
�� Strong load factors; yield improvement lower than expected
The company reported load factors of 76.9% (75.4% in Q3FY10) in JAL domestic,
80.6% (82.5% in Q3FY10) in JAL international, and 82.6% (78.8% in Q3FY10) in
JetLite during the quarter. Y-o-Y, average yields improved 6.2% in JAL domestic,
2.8% in JetLite, and were flat in the international segment. For Q4FY11, JAL
expects ~3% decline in average yields due to seasonality. During the quarter, it
partially shifted Jet Konnect capacity to Jet Airways full service.
�� Earnings cut to reflect higher oil prices, 3Q performance
We are revising down our FY11-13 EBIDTAR estimates 7-8% due to: (a) higherthan-
expected crude prices of 3-6% for FY12 and FY13; (b) lower yields in
domestic – we are now building a 5.5% q-o-q decline in 4QFY11 than earlier
estimate of 2% decline; we maintain our forecast of 5% y-o-y rise in yields in
FY12 and (c) marginal cut in domestic traffic to 79% from the earlier estimate of
80% for FY12 and FY13.
�� Outlook and valuations: Attractive; maintain ‘BUY’
We believe in FY12 strong demand will continue to outpace supply, resulting in
better yields. At CMP of INR 507, the stock is trading at 8.1x and 6.6x
EV/EBIDTAR. We value the company at 7.25x EV/EBIDTAR (earlier 7.5x) and
reduce our target price to INR 783, reflecting our downward revision of EBIDTAR
estimates. We maintain ‘BUY’ recommendation on the stock.
�� Recovery taking shape
Domestic operations
JAL’s domestic operations reported sales of INR 15.4 bn, up 20.6% Y-o-Y and 24.5% Qo-
Q. The Y-o-Y increase was due to the 13.8% increase in passenger traffic along with
6.3% increase in average yields. Average yields improved 16% sequentially and 6.2%
Y-o-Y. We continue with estimates of our 5% average yield increase for FY12 and FY13.
Load factors of 76.9% improved 150bps Y-o-Y. The company intends to add 4-6 aircrafts
during FY12 in domestic operations.
EBIDTAR rose to INR 3.56 bn, Y-o-Y increase of 14.5%, largely due to improvement in
average yields and passenger traffic. EBIDTA margin of 16.4% improved 40bps Y-o-Y
and 830bps Q-o-Q. We expect domestic operations to report FY11E and FY12E EBIDTAR
margins of 18.9% and 22.5%, respectively.
International operations
JAL international operations reported sales of INR 19.3 bn, up 20.2% Y-o-Y and 3.6% Qo-
Q. The Y-o-Y increase was due 18.8% increase in passenger traffic along with flat
average yields. For the past six continuous quarters, the company has been reporting
load factors of more than 80%. Average yields were marginally flat to negative on both
sequential and Y-o-Y basis. The company also mentioned that the recently launched
routes of Johannesburg and Italy are expected to break-even in another 1-2 quarters
against an average time period of 18-24 months. The company expects to continue
having strong operational performance on international operations. It is also expected to
bring back its two leased aircrafts to Turkish Airlines into its own international operations
by Q2FY12. We continue with our estimates of 5% average yield increase for FY12 and
FY13. Load factors of 76.9% improved 150bps Y-o-Y.
EBIDTAR rose to INR 4.95 bn, Y-o-Y increase of 23% and 2% sequential growth. 25.6%
of EBIDTAR margins improved Y-o-Y due to the improvement in average yields and
traffic. EBIDTA margins of 19.7% were flat Q-o-Q and improved 90bps Y-o-Y. We expect
international operations to report FY11E and FY12E EBIDTAR margins of 23% and
21.8%, respectively.
JetLite operations
JetLite reported sales of INR 4.8 bn, 16.1% Y-o-Y and 26.7% Q-o-Q jump. The Y-o-Y
increase was due to the 14% increase in passenger traffic along with 2.8% increase in
average yields. Average yields improved 11% sequentially. We continue with estimates
of our 6% and 5% average yield increase for FY12 and FY13, respectively. Load factors
of 82.6% improved 380bps Y-o-Y.
EBIDTAR rose to INR 1.1 bn, Y-o-Y increase of 37.4%, largely due to improvement in
average yields and passenger traffic. EBIDTA margins of 7.24% improved by substantial
690bps Y-o-Y. We expect JetLite to report FY11E and FY12E EBIDTAR margins of 18.4%
and 19.2%, respectively.
�� Company Description
Jet Airways (India, JAL) is India’s largest private sector airline with market share of
~26% in the domestic market. JAL was incorporated as an air taxi operator in April 1992
and began its commercial airline operations in May 1993 and international operations in
March 2004; it acquired Sahara Airlines (now rebranded as Jet Lite India, JLL) in April
2007. Across its domestic and international operations, the company operates 113
aircrafts (89 Jet Airways and 24 Jet Lite).
�� Investment Theme
With the expected growth in passenger traffic outpacing the supply growth in FY12, we
expect the company to be in a sweet spot to exploit the buoyant general economic
environment. After a very strong fleet addition by all industry players during FY04-08,
economic downturn of 2009 and continuous losses brought some rationality in the fleet
addition in 2009 and 2010. We expect the rationality to continue and believe that 8-10%
increase in supply will fall short of 14-15% increase in passenger traffic. With majority of
the cost fixed except fuel, there is huge operating leverage in the model. Also with the
triggers of Jet-Sahara case, BKC land sale, sale and leaseback of existing fleet and
proposed equity raising, we believe company has enough triggers to delverage the
balance sheet.
�� Key Risks
High crude oil prices, strong capacity addition by LCC’s and slowdown in traffic growth
are some of the most important risks for the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
�� Revenue in line; deferred tax lowers PAT
Jet Airways (JAL) registered Q3FY11 standalone sales of INR 34.7 bn (our
estimate INR 35.9 bn), an increase of 20% Y-o-Y and 12% Q-o-Q. The company
reported EBIDTAR and EBIDTA margin of 24.5% and 18.2%, respectively, for the
quarter. EBIDTA of INR 6.3 bn was 18.5% lower than our estimate as operating
expenses were higher than estimated. We were also building in sequentially lower
interest costs as the company had converted INR 22 bn of INR debt into USD
denominated debt, whereas it reported flat numbers. The quarter also includes an
unexpected deferred tax liability of INR 1 bn. Management has indicated the
~50% tax provision to be a one-time provision and has guided for 33% tax rate
on ongoing basis. JetLite reported EBIDTAR margin of 22.4%, EBIDTA margin of
7.2%, and PAT margin of 5.3%.
�� Strong load factors; yield improvement lower than expected
The company reported load factors of 76.9% (75.4% in Q3FY10) in JAL domestic,
80.6% (82.5% in Q3FY10) in JAL international, and 82.6% (78.8% in Q3FY10) in
JetLite during the quarter. Y-o-Y, average yields improved 6.2% in JAL domestic,
2.8% in JetLite, and were flat in the international segment. For Q4FY11, JAL
expects ~3% decline in average yields due to seasonality. During the quarter, it
partially shifted Jet Konnect capacity to Jet Airways full service.
�� Earnings cut to reflect higher oil prices, 3Q performance
We are revising down our FY11-13 EBIDTAR estimates 7-8% due to: (a) higherthan-
expected crude prices of 3-6% for FY12 and FY13; (b) lower yields in
domestic – we are now building a 5.5% q-o-q decline in 4QFY11 than earlier
estimate of 2% decline; we maintain our forecast of 5% y-o-y rise in yields in
FY12 and (c) marginal cut in domestic traffic to 79% from the earlier estimate of
80% for FY12 and FY13.
�� Outlook and valuations: Attractive; maintain ‘BUY’
We believe in FY12 strong demand will continue to outpace supply, resulting in
better yields. At CMP of INR 507, the stock is trading at 8.1x and 6.6x
EV/EBIDTAR. We value the company at 7.25x EV/EBIDTAR (earlier 7.5x) and
reduce our target price to INR 783, reflecting our downward revision of EBIDTAR
estimates. We maintain ‘BUY’ recommendation on the stock.
�� Recovery taking shape
Domestic operations
JAL’s domestic operations reported sales of INR 15.4 bn, up 20.6% Y-o-Y and 24.5% Qo-
Q. The Y-o-Y increase was due to the 13.8% increase in passenger traffic along with
6.3% increase in average yields. Average yields improved 16% sequentially and 6.2%
Y-o-Y. We continue with estimates of our 5% average yield increase for FY12 and FY13.
Load factors of 76.9% improved 150bps Y-o-Y. The company intends to add 4-6 aircrafts
during FY12 in domestic operations.
EBIDTAR rose to INR 3.56 bn, Y-o-Y increase of 14.5%, largely due to improvement in
average yields and passenger traffic. EBIDTA margin of 16.4% improved 40bps Y-o-Y
and 830bps Q-o-Q. We expect domestic operations to report FY11E and FY12E EBIDTAR
margins of 18.9% and 22.5%, respectively.
International operations
JAL international operations reported sales of INR 19.3 bn, up 20.2% Y-o-Y and 3.6% Qo-
Q. The Y-o-Y increase was due 18.8% increase in passenger traffic along with flat
average yields. For the past six continuous quarters, the company has been reporting
load factors of more than 80%. Average yields were marginally flat to negative on both
sequential and Y-o-Y basis. The company also mentioned that the recently launched
routes of Johannesburg and Italy are expected to break-even in another 1-2 quarters
against an average time period of 18-24 months. The company expects to continue
having strong operational performance on international operations. It is also expected to
bring back its two leased aircrafts to Turkish Airlines into its own international operations
by Q2FY12. We continue with our estimates of 5% average yield increase for FY12 and
FY13. Load factors of 76.9% improved 150bps Y-o-Y.
EBIDTAR rose to INR 4.95 bn, Y-o-Y increase of 23% and 2% sequential growth. 25.6%
of EBIDTAR margins improved Y-o-Y due to the improvement in average yields and
traffic. EBIDTA margins of 19.7% were flat Q-o-Q and improved 90bps Y-o-Y. We expect
international operations to report FY11E and FY12E EBIDTAR margins of 23% and
21.8%, respectively.
JetLite operations
JetLite reported sales of INR 4.8 bn, 16.1% Y-o-Y and 26.7% Q-o-Q jump. The Y-o-Y
increase was due to the 14% increase in passenger traffic along with 2.8% increase in
average yields. Average yields improved 11% sequentially. We continue with estimates
of our 6% and 5% average yield increase for FY12 and FY13, respectively. Load factors
of 82.6% improved 380bps Y-o-Y.
EBIDTAR rose to INR 1.1 bn, Y-o-Y increase of 37.4%, largely due to improvement in
average yields and passenger traffic. EBIDTA margins of 7.24% improved by substantial
690bps Y-o-Y. We expect JetLite to report FY11E and FY12E EBIDTAR margins of 18.4%
and 19.2%, respectively.
�� Company Description
Jet Airways (India, JAL) is India’s largest private sector airline with market share of
~26% in the domestic market. JAL was incorporated as an air taxi operator in April 1992
and began its commercial airline operations in May 1993 and international operations in
March 2004; it acquired Sahara Airlines (now rebranded as Jet Lite India, JLL) in April
2007. Across its domestic and international operations, the company operates 113
aircrafts (89 Jet Airways and 24 Jet Lite).
�� Investment Theme
With the expected growth in passenger traffic outpacing the supply growth in FY12, we
expect the company to be in a sweet spot to exploit the buoyant general economic
environment. After a very strong fleet addition by all industry players during FY04-08,
economic downturn of 2009 and continuous losses brought some rationality in the fleet
addition in 2009 and 2010. We expect the rationality to continue and believe that 8-10%
increase in supply will fall short of 14-15% increase in passenger traffic. With majority of
the cost fixed except fuel, there is huge operating leverage in the model. Also with the
triggers of Jet-Sahara case, BKC land sale, sale and leaseback of existing fleet and
proposed equity raising, we believe company has enough triggers to delverage the
balance sheet.
�� Key Risks
High crude oil prices, strong capacity addition by LCC’s and slowdown in traffic growth
are some of the most important risks for the company.
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