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Jet Airways (JETIN)
Others
In-line results. Jet’s 2QFY12 results were in line on operating profit front. Standalone
domestic business disappointed; yield (rev per RPKM) dropped ~14% qoq versus our
expectations of a drop of 9%. International business showed sequential improvement
(EBITDAR at 13.6% versus 11.3% in 1Q). We see signs of competitive intensity reducing
going forward (Kingfisher flight cancellations –case in point). We would review our
estimates post concall. Retain BUY.
In-line results – international business saves the day
Jet Airways reported 2QFY12 consolidated revenue at Rs35 bn (+1% yoy; -12% qoq); in line with
estimates. Reported EBITDA loss at Rs1.5 bn was in line with our estimates. Lower-than-estimated
interest cost led to marginal beat on PBT (loss of Rs5.5 bn versus estimate of Rs6 bn).Domestic
business disappointed as yields (rev per RPKM) declined ~13% qoq; higher than our estimate of
decline of 8%. International business reported higher profitability (qoq); EBITDAR margin improved
from 11.3% in 1QFY12 to 13.5% in 2QFY12 and was able to achieve cash-positive levels.
Second largest player (Kingfisher) is unable to sustain operations – positive for incumbents
According to various new reports, Kingfisher has reduced its scale of operations by anywhere
between 36% and 50% going by the daily flights being operated by the company. Just for a
perspective, these cancellations are happening in the strongest quarter of the year when the cash
flows and profitability of the airlines are at their peaks. Hence, sustaining operations in the coming
quarters would be even more difficult for the airline. Kingfisher has 20% share of the domestic
market. The current scenario augurs well for airlines (which can sustain operations) as going by the
prevailing scenario it looks like the competitive intensity would reduce meaningfully.
Cash flow position remains worrying- 3QFY12E should show an improvement, hopefully
As per our assumptions, the airline has lost close to Rs8 bn of operating cash in the last three
quarters without including any incremental working capital requirements. Given the high debt in
the balance sheet, cash loss situation needs to improve. We are increasingly getting worried on
that front and would need to take a relook at our rating if the cash loss situation persists. From
that perspective 3QFY12E would be a significant improvement as both yield and PLF would
improve qoq. As of now the company has a few levers (one of which was sale of BKC land) like
profits on sale and lease back transactions which could provide some amount of cushion on the
cash flow front. Also, net working capital in the standalone business is negative (-Rs2 bn) in
September versus Rs4.28 bn in March 2011 which could mean that the company has delayed
payments on account of which liabilities are up.
Maintain BUY with a target price of Rs500
We are maintaining our BUY rating on the stock. We would take a relook at our estimates
post conference call scheduled for Monday. In our view, we will have to further downgrade
FY2012E earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jet Airways (JETIN)
Others
In-line results. Jet’s 2QFY12 results were in line on operating profit front. Standalone
domestic business disappointed; yield (rev per RPKM) dropped ~14% qoq versus our
expectations of a drop of 9%. International business showed sequential improvement
(EBITDAR at 13.6% versus 11.3% in 1Q). We see signs of competitive intensity reducing
going forward (Kingfisher flight cancellations –case in point). We would review our
estimates post concall. Retain BUY.
In-line results – international business saves the day
Jet Airways reported 2QFY12 consolidated revenue at Rs35 bn (+1% yoy; -12% qoq); in line with
estimates. Reported EBITDA loss at Rs1.5 bn was in line with our estimates. Lower-than-estimated
interest cost led to marginal beat on PBT (loss of Rs5.5 bn versus estimate of Rs6 bn).Domestic
business disappointed as yields (rev per RPKM) declined ~13% qoq; higher than our estimate of
decline of 8%. International business reported higher profitability (qoq); EBITDAR margin improved
from 11.3% in 1QFY12 to 13.5% in 2QFY12 and was able to achieve cash-positive levels.
Second largest player (Kingfisher) is unable to sustain operations – positive for incumbents
According to various new reports, Kingfisher has reduced its scale of operations by anywhere
between 36% and 50% going by the daily flights being operated by the company. Just for a
perspective, these cancellations are happening in the strongest quarter of the year when the cash
flows and profitability of the airlines are at their peaks. Hence, sustaining operations in the coming
quarters would be even more difficult for the airline. Kingfisher has 20% share of the domestic
market. The current scenario augurs well for airlines (which can sustain operations) as going by the
prevailing scenario it looks like the competitive intensity would reduce meaningfully.
Cash flow position remains worrying- 3QFY12E should show an improvement, hopefully
As per our assumptions, the airline has lost close to Rs8 bn of operating cash in the last three
quarters without including any incremental working capital requirements. Given the high debt in
the balance sheet, cash loss situation needs to improve. We are increasingly getting worried on
that front and would need to take a relook at our rating if the cash loss situation persists. From
that perspective 3QFY12E would be a significant improvement as both yield and PLF would
improve qoq. As of now the company has a few levers (one of which was sale of BKC land) like
profits on sale and lease back transactions which could provide some amount of cushion on the
cash flow front. Also, net working capital in the standalone business is negative (-Rs2 bn) in
September versus Rs4.28 bn in March 2011 which could mean that the company has delayed
payments on account of which liabilities are up.
Maintain BUY with a target price of Rs500
We are maintaining our BUY rating on the stock. We would take a relook at our estimates
post conference call scheduled for Monday. In our view, we will have to further downgrade
FY2012E earnings.
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