>JET AIRWAYS: Q4FY12 results

WHAT’S CHANGED…
PRICE TARGET....................................................................................................Unchanged
EPS (FY13E)............................................................................................................... -| 159
EPS (FY14E)............................................................................................................... -| 125
RATING....................................................................................... Changed from Buy to Hold


Earnings in line but challenges remain…
Jet Airways’ (JAL) Q4FY12 results were better than our expectations at operating levels. Its topline growth remained more or less in line with our estimates. Capacity reduction by other private carriers helped the company to improve load factors and yields especially in the domestic segment despite operating in the lean business season compared to the last quarter (i.e. Q3FY12). As a result, its revenue and market share both increased by 2.4% and 280 bps, sequentially. The company reported an operating revenue of | 4578 crore vs. estimated revenue of | 4680 crore. However, higher domestic fuel prices and weak rupee led to operating loss of | 55.2 crore and | 40 crore for Jet’s domestic segment and JetLite, respectively. On the other hand, the international segment’s performance remained healthy and it reported operating profit of | 182 crore. This, in turn, led to net consolidated operating profit of | 86 crore for the quarter vs. our estimated net operating loss of | 77.1 crore. However, at the PAT level, JAL reported a net loss of | 354 crore vs. | 196.5 crore last year due to higher depreciation & interest costs. Going ahead, we believe, operating environment for the company will continue to remain challenging in the wake of higher fuel prices & depreciating rupee despite growth in revenues. Hence, we downgrade our rating to HOLD from BUY.


 ■  Fuel, weak rupee dent margin despite better topline growth
Fuel prices and rupee depreciation continued to remain a cause for concern during this quarter as ATF prices have increased by 5.7% QoQ and the rupee continued to slide further on a sequential basis. As a result, the company was unable to improve its profitability despite better growth in total revenues.


Valuations
We believe revenue growth would moderate as a rise in fleet supply by other players poses risk, going forward. We expect FY12-14E revenue CAGR of 14% vs. revenue CAGR of 18% during FY10-12. Also, we believe the operating environment will continue to remain challenging in the wake of higher fuel prices and a depreciating rupee in the near term. Hence, we have downgraded our rating from BUY to HOLD and maintain our target price of | 330 (i.e. 0.7x FY14E EV/Sales). A near term upside risk includes positive policy reforms like allowing 49% FDI by foreign carriers. However, that would mainly be sentimental.

RISH TRADER