Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aviation
India
Glimmer of hope. As per news articles, Kingfisher has cancelled ~40% of its daily
flights (370 per day) on account of cash flow problems. As per the management, these
were loss-making routes. This is a significant development in the sector which has been
reeling under losses. Kingfisher accounts for 19% of domestic capacity. If the company
is not able to sustain operations in the seasonally strongest quarter when cash flows are
strongest, it could get even worse in the coming months in absence of fresh fund
infusion. Evolving scenario could reduce competition in the sector and augurs well for
existing players (not strained for cash). We reiterate our BUY call on Spicejet and Jet
Airways with a price target of Rs50 and Rs500, respectively.
Kingfisher cancels ~40% of its daily flights – competitive intensity would reduce
As per media reports, Kingfisher has cancelled close to ~40% of its daily flights till November 19.
In our view, precarious cash flow position of the company has led it to close routes where cash
drain was higher versus other routes. Considering that the airline is not able to sustain operations
in the seasonally strongest quarter, it would become even more difficult going forward when the
profitability reduces further in seasonally weaker quarters. Hence, in absence of any significant
capital infusion (Kingfisher), it seems like competitive intensity is set to reduce going forward.
Kingfisher has a market share of 19% in the domestic market. Any reduction of operations by
Kingfisher would have significant benefits for other airlines.
It’s time for the government to act – sales tax on fuel could be reduced
The sector has been reeling under losses and threatens to create problems for domestic banks
(mostly PSUs). It is time the government takes steps to stop the situation from flaring. In our view,
one of the major policy responses could be reduction of state sales tax on fuel from average levels
of 24% (average across states) to 4%. This could be done by changing the status of jet fuel to
‘declared goods’ which would attract uniform state sales tax of 4% across India. As per industry
sources, to get the states to toe the line, the center would need to compensate them for the losses
(~Rs25 bn p.a.). In our view, the tab is much lower than what the government would have to bear
in case the situation persists for long as most of the NPAs would be borne by PSU banks.
Spicejet and Jet Airways are well-placed to benefit out of emerging scenario
Spicejet and Jet Airways are well-placed to benefit out of the emerging scenario. Spicejet has a
strong balance sheet. Net debt as of Sep 2011 was Rs4.7 bn (mostly on account of fleet
acquisitions). Jet Airways, even as the company has high leverage, would be comfortable from
cash flow perspective in case the competitive intensity were to reduce going forward. In our view,
the company can generate Rs12 bn of cash in a normalized scenario. The company has generated
similar cash flow in four quarters from 4QFY10 to 3QFY11. Also, the cash burn (Rs7.7 bn in the
last three quarters) could be managed through Rs5 bn inflow on account of land deal with Godrej
and US$150 mn of possible MTM profit on sale and lease back transactions.
Changing estimates for Jet Airways; retain BUY on Jet Airways and Spicejet
We have reduced our EBITDAR estimate for Jet Airways by 12% for FY2012E on account of lowerthan-
estimated yields in 1HFY12E while our estimates remain broadly the same for FY2013E and
FY2014E. BUY with a target price of Rs50 and Rs500 for Spicejet and Jet Airways, respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Aviation
India
Glimmer of hope. As per news articles, Kingfisher has cancelled ~40% of its daily
flights (370 per day) on account of cash flow problems. As per the management, these
were loss-making routes. This is a significant development in the sector which has been
reeling under losses. Kingfisher accounts for 19% of domestic capacity. If the company
is not able to sustain operations in the seasonally strongest quarter when cash flows are
strongest, it could get even worse in the coming months in absence of fresh fund
infusion. Evolving scenario could reduce competition in the sector and augurs well for
existing players (not strained for cash). We reiterate our BUY call on Spicejet and Jet
Airways with a price target of Rs50 and Rs500, respectively.
Kingfisher cancels ~40% of its daily flights – competitive intensity would reduce
As per media reports, Kingfisher has cancelled close to ~40% of its daily flights till November 19.
In our view, precarious cash flow position of the company has led it to close routes where cash
drain was higher versus other routes. Considering that the airline is not able to sustain operations
in the seasonally strongest quarter, it would become even more difficult going forward when the
profitability reduces further in seasonally weaker quarters. Hence, in absence of any significant
capital infusion (Kingfisher), it seems like competitive intensity is set to reduce going forward.
Kingfisher has a market share of 19% in the domestic market. Any reduction of operations by
Kingfisher would have significant benefits for other airlines.
It’s time for the government to act – sales tax on fuel could be reduced
The sector has been reeling under losses and threatens to create problems for domestic banks
(mostly PSUs). It is time the government takes steps to stop the situation from flaring. In our view,
one of the major policy responses could be reduction of state sales tax on fuel from average levels
of 24% (average across states) to 4%. This could be done by changing the status of jet fuel to
‘declared goods’ which would attract uniform state sales tax of 4% across India. As per industry
sources, to get the states to toe the line, the center would need to compensate them for the losses
(~Rs25 bn p.a.). In our view, the tab is much lower than what the government would have to bear
in case the situation persists for long as most of the NPAs would be borne by PSU banks.
Spicejet and Jet Airways are well-placed to benefit out of emerging scenario
Spicejet and Jet Airways are well-placed to benefit out of the emerging scenario. Spicejet has a
strong balance sheet. Net debt as of Sep 2011 was Rs4.7 bn (mostly on account of fleet
acquisitions). Jet Airways, even as the company has high leverage, would be comfortable from
cash flow perspective in case the competitive intensity were to reduce going forward. In our view,
the company can generate Rs12 bn of cash in a normalized scenario. The company has generated
similar cash flow in four quarters from 4QFY10 to 3QFY11. Also, the cash burn (Rs7.7 bn in the
last three quarters) could be managed through Rs5 bn inflow on account of land deal with Godrej
and US$150 mn of possible MTM profit on sale and lease back transactions.
Changing estimates for Jet Airways; retain BUY on Jet Airways and Spicejet
We have reduced our EBITDAR estimate for Jet Airways by 12% for FY2012E on account of lowerthan-
estimated yields in 1HFY12E while our estimates remain broadly the same for FY2013E and
FY2014E. BUY with a target price of Rs50 and Rs500 for Spicejet and Jet Airways, respectively.
No comments:
Post a Comment