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Jet Airways (India) Ltd.
Overweight
JET.BO, JETIN IN
4Q FY11: Yields to improve; could hurt near-term
demand
Jet Airways’ 4Q EBITDAR margins of 8.7% were below estimates on account of
higher fuel costs. Recent price increases are likely to mitigate cost pressure, but
could hurt near-term demand. We cut EBITDAR by 5%/2% to reflect pressure on
load factors, but raise our PT to Rs575 as we roll forward our timeframe.
• Fuel costs abating: Jet Kerosene prices, currently at US$125/bbl, have
corrected 13% from US$143/bbl in mid-April. Based the forecasts of our Oil &
Gas research team, we expect a further correction in oil prices. We are assuming
Singapore jet kerosene at US$115/bbl for 2011 and US$127/bbl for 2012. Every
US$1/bbl increase in oil would have a 5% adverse earnings impact on JETIN.
• Yields to improve, but could pare near term demand: Management noted
that domestic yields should improve 20% post recent fare increases (done in
May). After this rise, the entire fuel cost rise would be passed on. (We assume
overall yields to improve by 8% in FY12 to factor in pressure from recent price
cuts by Air India). Near-term domestic demand may slow down due to higher
fares, but is expected to pick up going forward on account of limited capacity
addition in FY12. We cut our FY12/13 EBITDAR estimates by 5%/2% to
reflect pressure on load factors. We roll forward to PT to Mar-12 (previously
Sep-11), and raise it Rs575 based on 8x FY13E EV/EBITDAR.
• FY11 results highlights: FY11 revenues up 22% driven by strong Jet Domestic
(+23% YoY) and Jet International (+22% YoY). EBITDAR margins remained
flat YoY at 18.7% affected by high fuel costs. There were a few one-offs that
pared profits in 4Q - 1) price cuts by Air India; 2)Rs580MM impact due to past
service tax demands; 3) a delivery on new ATRs in 4Q, which were deployed
only in May.
• BKC land sale imminent: JETIN indicated that it had identified buyers for
BKC land and expected to close the deal in two weeks. JETIN is also looking to
sell-and-lease back a few aircraft. We are not taking into account the sale of
BKC land in our estimates on account of ongoing litigation with Sahara.
• Stock triggers: Further reductions in oil and asset sale to pay down debt are key
to stock performance going forward. Key risks include an increase in oil prices,
slower passenger traffic, regulatory cap on fares and a weaker rupee.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jet Airways (India) Ltd.
Overweight
JET.BO, JETIN IN
4Q FY11: Yields to improve; could hurt near-term
demand
Jet Airways’ 4Q EBITDAR margins of 8.7% were below estimates on account of
higher fuel costs. Recent price increases are likely to mitigate cost pressure, but
could hurt near-term demand. We cut EBITDAR by 5%/2% to reflect pressure on
load factors, but raise our PT to Rs575 as we roll forward our timeframe.
• Fuel costs abating: Jet Kerosene prices, currently at US$125/bbl, have
corrected 13% from US$143/bbl in mid-April. Based the forecasts of our Oil &
Gas research team, we expect a further correction in oil prices. We are assuming
Singapore jet kerosene at US$115/bbl for 2011 and US$127/bbl for 2012. Every
US$1/bbl increase in oil would have a 5% adverse earnings impact on JETIN.
• Yields to improve, but could pare near term demand: Management noted
that domestic yields should improve 20% post recent fare increases (done in
May). After this rise, the entire fuel cost rise would be passed on. (We assume
overall yields to improve by 8% in FY12 to factor in pressure from recent price
cuts by Air India). Near-term domestic demand may slow down due to higher
fares, but is expected to pick up going forward on account of limited capacity
addition in FY12. We cut our FY12/13 EBITDAR estimates by 5%/2% to
reflect pressure on load factors. We roll forward to PT to Mar-12 (previously
Sep-11), and raise it Rs575 based on 8x FY13E EV/EBITDAR.
• FY11 results highlights: FY11 revenues up 22% driven by strong Jet Domestic
(+23% YoY) and Jet International (+22% YoY). EBITDAR margins remained
flat YoY at 18.7% affected by high fuel costs. There were a few one-offs that
pared profits in 4Q - 1) price cuts by Air India; 2)Rs580MM impact due to past
service tax demands; 3) a delivery on new ATRs in 4Q, which were deployed
only in May.
• BKC land sale imminent: JETIN indicated that it had identified buyers for
BKC land and expected to close the deal in two weeks. JETIN is also looking to
sell-and-lease back a few aircraft. We are not taking into account the sale of
BKC land in our estimates on account of ongoing litigation with Sahara.
• Stock triggers: Further reductions in oil and asset sale to pay down debt are key
to stock performance going forward. Key risks include an increase in oil prices,
slower passenger traffic, regulatory cap on fares and a weaker rupee.
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