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Jet Airways
Difficult times ahead;
downgrade to Underperform
„Recovery delayed; Lower forecast and PO to Rs400
Downgrade our rating on Jet Airways to a non-consensus Underperform from
Buy, with a reduced PO of Rs400 (earlier Rs650). Lower EBITDAR estimates by
21%/17% over FY12/13. This is on account of (a) hike in ATF price to $120/bbl
from $115/bbl, (b) ~3%-4% cut in yields, and (c) 100bps cut in domestic load
factors for FY13E. We expect Jet to post losses for FY12E-13E and break-even
only in FY14E. Despite the 38% decline in stock value YTD, we believe the
worsening domestic environment and higher fuel costs will likely push the stock
lower. We therefore downgrade our rating on Jet to Underperform from Buy. Our
new PO of Rs400 is based on a down-cycle multiple of 8.5x FY13E EV/EBITDAR.
Domestic business: No respite in sight
Despite strong domestic traffic growth, we expect the domestic business to post
losses over FY12E-13E. We also expect a muted yield recovery of 3-4% over the
same period due to increased competitive intensity among domestic carriers. We
estimate domestic EBITDAR margins to decline ~500bp to 10.3% in FY12E.
International biz strong but only modest profits seen in FY13E
Jet Airways has built a strong international franchise over the past 2-3 years and
has emerged as a network carrier in the region. However, increased focus by the
global and domestic LCCs on short-haul international routes will likely increase
competition for economy seats. We expect international EBITDAR to show a
modest 3% CAGR over FY11-14E.
Valuations expensive compared to peers
Jet Airways is currently trading at 9x FY13E EV/EBITDAR compared with 5x-8x
for the regional peers. Given the worsening domestic business, we believe the
stock is likely to get de-rated from its currently richer than peer valuations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jet Airways
Difficult times ahead;
downgrade to Underperform
„Recovery delayed; Lower forecast and PO to Rs400
Downgrade our rating on Jet Airways to a non-consensus Underperform from
Buy, with a reduced PO of Rs400 (earlier Rs650). Lower EBITDAR estimates by
21%/17% over FY12/13. This is on account of (a) hike in ATF price to $120/bbl
from $115/bbl, (b) ~3%-4% cut in yields, and (c) 100bps cut in domestic load
factors for FY13E. We expect Jet to post losses for FY12E-13E and break-even
only in FY14E. Despite the 38% decline in stock value YTD, we believe the
worsening domestic environment and higher fuel costs will likely push the stock
lower. We therefore downgrade our rating on Jet to Underperform from Buy. Our
new PO of Rs400 is based on a down-cycle multiple of 8.5x FY13E EV/EBITDAR.
Domestic business: No respite in sight
Despite strong domestic traffic growth, we expect the domestic business to post
losses over FY12E-13E. We also expect a muted yield recovery of 3-4% over the
same period due to increased competitive intensity among domestic carriers. We
estimate domestic EBITDAR margins to decline ~500bp to 10.3% in FY12E.
International biz strong but only modest profits seen in FY13E
Jet Airways has built a strong international franchise over the past 2-3 years and
has emerged as a network carrier in the region. However, increased focus by the
global and domestic LCCs on short-haul international routes will likely increase
competition for economy seats. We expect international EBITDAR to show a
modest 3% CAGR over FY11-14E.
Valuations expensive compared to peers
Jet Airways is currently trading at 9x FY13E EV/EBITDAR compared with 5x-8x
for the regional peers. Given the worsening domestic business, we believe the
stock is likely to get de-rated from its currently richer than peer valuations.
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