Saturday, August 18, 2012


Jet reported better than expected results for 1QFY13 with pre-ex PBT of Rs.456m after five successive quarters of losses. Yield improvements, particularly in the international business, helped drive 30% revenue growth. Costs remained under control and helped drive a 113% YoY increase in Ebitdar. Looking ahead, a strong yield environment, focus on route utilisation and tight cost control should help sustain performance. We now expect profitability to sustain over FY13-14 and significantly upgrade estimates. Upgrade Jet to BUY with a TP of Rs500.

Back in black after five quarters of losses
Jet’s 1QFY13 results reflected rising yields and high cost discipline amidst pressures from fuel, currency and higher airport charges. Ebitdar rose 113% YoY/100% QoQ with a margin recovery in both segments. Pre-exc PBT returned to positive territory after five quarters of losses, coming in at Rs456m against a loss of Rs2.7bn in 1Q12 and Rs3.3bn in 4Q12. At the reported level, FX losses were largely offset by gains on sale and leaseback of two aircrafts and net profit stood at Rs247m – the highest since 3QFY11.

Domestic – yields strong, focus turns to costs and efficiency
Domestic seat factors were at 76.2% (74.6% in 1Q12) while yields were up 10% YoY/9% QoQ amidst strong industry pricing. Fuel costs rose 8% QoQ/27% YoY as rupee depreciation filtered through while other costs grew slower than sales. Ebitdar margins stood at 15.0% (+700bps YoY/1040bps QoQ). Looking ahead, while 2Q will see seasonal weakness, the overall yield and load environment remains strong. Margin performance is being  complemented by tight cost control with Jet controlling staff, selling, maintenance and other costs to target a 5-8% reduction in cost/ASKM.

International – yields and loads strong, route optimisation in focus
The international business saw yields increase 21% YoY/10% QoQ while loads increased 5.8% YoY to 86.3% - an all time high. The improvement is being driven by route rationalisation and an uptick in gulf markets. Fuel costs rose 25% YoY while selling and staff costs declined. Ebitdar margins improved 580bps YoY/440bps QoQ to 17.0%. Looking ahead, the focus on profitable routes and recovery in gulf markets should help sustain margins.

Asset sales easing balance sheet pressure; upgrade to BUY
Jet is focusing on debt reduction with a target of US$400m for the year. The sale and leaseback of two aircrafts and engines in 1Q helped raise Rs720m and an additional 8-9 aircrafts are planned for 2Q. Given the improved performance in international and cost discipline in domestic, we now expect improved profitability over FY13-14, driving significant upgrades. Continuing strength in operating performance and debt reduction leaves room for upside. Upgrade to BUY from SELL earlier (TP Rs500, 6.9x FY14 Adj EV/Ebitdar).

To read report in detail: JET AIRWAYS