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Jet Airways (JAL) reported a Q2 loss of INR5.6bn as against our estimate
of INR3.1bn loss. High oil prices coupled with irrational pricing by
competition continued to impact results with yields falling lower than
expected. Outlook for H2FY12 is improving – capacity cut by Kingfisher
(KFA) has triggered a 20% rise in yields in November. BKC land sale and
proposed sale and leaseback (SLB) of aircraft will help Jet improve its
Balance Sheet. Retain ‘BUY’.
Weak Q2 driven by high oil prices, lower yields
Due to the heightened competition, Jet could not pass on the impact of higher oil
prices which shot up 35% YoY (flat sequentially). However, yields were lower by ~4%
YoY for domestic, flat for international operations and down 15.5% YoY for JetLite. As a
result, EBIDTAR margins were under severe stress, coming in at the lowest in the last
12 quarters. Excluding exceptional forex losses of INR2.6bn, net losses came in at
INR5.6bn.
Outlook better for 2H
As per the management, fares have surged 20% sequentially in November. With KFA
cutting routes, JAL is witnessing a strong inflow of corporate travelers. The
management is taking steps to cut costs per ASKM by 8%-10% over a year along with
the BKC land deal and SLB transactions to reduce debt levels. Due to the weak H1 and
stubbornly high fuel prices, we cut our FY12 and FY13 EBIDTAR estimates by 50% and
13%. We maintain our FY13 average yield improvement estimates of 5% and load
factor estimates of 80%-81%.
Outlook and valuations: Fall in oil prices key; maintain ‘BUY’
We believe that the industry supply is unlikely to exceed 8%-10% over the next year
given the distressed balance sheets of most large players. With demand remaining
strong in high double-digits and the industry operating at peak loads, Jet stands to gain
from any potential fall in oil prices. It would also benefit from the deleveraging of its
balance sheet on account of BKC land deal and aircraft SLB transactions. In line with a
cut in our estimates, we trim the target price to INR400 (earlier INR610) by rolling over
to FY13 and continuing to value Jet at 7.25x EV/EBIDTAR.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Jet Airways (JAL) reported a Q2 loss of INR5.6bn as against our estimate
of INR3.1bn loss. High oil prices coupled with irrational pricing by
competition continued to impact results with yields falling lower than
expected. Outlook for H2FY12 is improving – capacity cut by Kingfisher
(KFA) has triggered a 20% rise in yields in November. BKC land sale and
proposed sale and leaseback (SLB) of aircraft will help Jet improve its
Balance Sheet. Retain ‘BUY’.
Weak Q2 driven by high oil prices, lower yields
Due to the heightened competition, Jet could not pass on the impact of higher oil
prices which shot up 35% YoY (flat sequentially). However, yields were lower by ~4%
YoY for domestic, flat for international operations and down 15.5% YoY for JetLite. As a
result, EBIDTAR margins were under severe stress, coming in at the lowest in the last
12 quarters. Excluding exceptional forex losses of INR2.6bn, net losses came in at
INR5.6bn.
Outlook better for 2H
As per the management, fares have surged 20% sequentially in November. With KFA
cutting routes, JAL is witnessing a strong inflow of corporate travelers. The
management is taking steps to cut costs per ASKM by 8%-10% over a year along with
the BKC land deal and SLB transactions to reduce debt levels. Due to the weak H1 and
stubbornly high fuel prices, we cut our FY12 and FY13 EBIDTAR estimates by 50% and
13%. We maintain our FY13 average yield improvement estimates of 5% and load
factor estimates of 80%-81%.
Outlook and valuations: Fall in oil prices key; maintain ‘BUY’
We believe that the industry supply is unlikely to exceed 8%-10% over the next year
given the distressed balance sheets of most large players. With demand remaining
strong in high double-digits and the industry operating at peak loads, Jet stands to gain
from any potential fall in oil prices. It would also benefit from the deleveraging of its
balance sheet on account of BKC land deal and aircraft SLB transactions. In line with a
cut in our estimates, we trim the target price to INR400 (earlier INR610) by rolling over
to FY13 and continuing to value Jet at 7.25x EV/EBIDTAR.
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