Jet Airways: Climb to continue as earnings take-off:: HSBC

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Jet Airways (JETIN)
OW(V): Climb to continue as earnings take-off
 Cyclical recovery suggests strong growth outlook; industry
discipline to help sustain yield increases
 Jet best placed to enjoy Indian growth, given its strong
brand, wide network and large market share
 OW(V). Raise TP to INR1,000 (from INR590)




Well positioned in fast growing Indian market. Air travel growth in India has been strong,
expanding at a 16% CAGR over 2004-09. Given our 8%+ GDP growth forecast for India over
the next two years, we expect demand for air travel to remain robust. With more than onequarter
market share, we believe Jet is the best placed Indian airline to enjoy this growth. We
also argue that Jet’s international operations have matured and will now add significantly to its
profits. Most routes have achieved breakeven and loads are at an all-time high.

Earnings to take-off. We forecast Jet’s recurring net profit will grow at a 79% CAGR
over FY11-13. Our estimates are 2% and 7% ahead of consensus in FY11 and in
FY12 respectively.

Remain OW(V), raise target price to INR1,000. We value Jet using FY11e multiples of
Cathay Pacific and Air China, as well as its own its own 2005-07 price to book trading
range. We set the fair value of Jet at the mid-point of the range and raise our target to
INR1,000, which offers 23% potential return. At our target, Jet would trade at 3x FY12e
price to book and 10x FY12e PE.

Currency and fuel are key share price drivers. Jet’s shares are positively correlated
with dollar weakness. Its relative share price performance (versus MSCI AEJ) is
negatively correlated with rising fuel prices; thus, fuel price spikes and US dollar strength
are also the key risks.