Jet Airways (JETAIR) 540

Transcription

1 Result Update Rating matrix Rating : Buy Target : 750 Target Period : months Potential Upside : 39% What s changed? Target Changed from 790 to 750 EPS FY17E Changed from to 98.5 EPS FY18E Changed from to Rating Unchanged Quarterly performance Q1FY17 Q1FY16 YoY (%) Q4FY16 QoQ (%) Revenue 5, , , EBITDA , EBITDA (%) bps bps PAT Key financials Crore FY15 FY16 FY17E FY18E Net Sales 20,966 22,207 22,829 23,765 EBITDA 210 2,236 2,468 2,486 Net Profit (2,097) 1,212 1,119 1,216 EPS ( ) (184.6) Valuation summary FY15 FY16 FY17E FY18E P/E (2.9) Target P/E (4.1) EV/EBITDA EV/Sales P/BV NA NA NA NA RoNW (%) NA NA NA NA RoCE (%) Stock data Particular Amount ( crore) Mcap Debt (FY16) Cash & Invest (FY16) EV week H/L ( ) 796/248 Equity cap 114 Face value ( ) 10 Price performance 1M 3M 6M 12M SpiceJet Jet Airways Research Analyst Rashesh Shah rashes.shah@icicisecurities.com Devang Bhatt devang.bhatt@icicisecurities.com August 17, 2016 Jet Airways (JETAIR) 540 Weak pricing environment dents margins Jet Airways performance during the quarter remained weak, mainly led by a drop in realisations (down 6.5% YoY), higher employee costs (up 16.4% YoY) & depreciation charge (up 25.4% YoY). This quarter also had an exceptional loss of 92 crore with respect to forex loss. This, in turn, led to a sharp fall in net profit in the quarter While average domestic fares dropped sharply by 10% YoY led by a rise in competition, international fares declined only 2.5% YoY. Total passenger traffic grew 4.5% YoY in line with our estimates This quarter saw an average ATF price hike of 13% on a QoQ basis. However, it was still down 17% YoY, helping the company to improve margins by 270 bps The company s focus on debt reduction has helped it to reduce the interest cost by 11% YoY. During the quarter, Jet repaid 358 crore of debt More focused on international compared to domestic segment Jet Airways is more focused on the international segment (inbound and outbound traffic) than on the domestic segment as the international segment is more stable and offers higher margins than the domestic segment. Further, it also provides a natural hedge against currency weakness vs. the dollar. During FY11-16, the international segment has outpaced the domestic segment with revenue CAGR of 9.7% vs. domestic segment (Jet + JetLite) revenue CAGR of 5.4% in FY The revenue share of the international segment as of FY16 was at ~55%. Domestic market share in falling trend, down to 19% vs. 21.9% last year Jet s domestic market share has further come down by 280 bps YoY to 19.1% led by a rise in fleet capacity by some players like SpiceJet. Barring FY12, where the KFA turmoil benefited all domestic carriers, Jet s market share has come down from a peak of 29.3% in Q4FY12 to 23.9% in Q4FY14 and further down to 19% in Q1FY17. However, with the stabilisation in fleet capacity by other players, the return of six aircraft from Etihad, we expect the company to gain the traction in market share, going forward. Margins to sustain over 10% followed by benign ATF prices, higher growth in domestic segment While FY14 and FY15 have remained challenging years, FY15 saw an improvement led by a significant reduction in ATF prices. Although we expect average ATF prices to rise ~14% in FY17E, we expect OPM margins to remain healthy assuming Brent crude at $58/barrel. Further, with the robust growth in the domestic market, we expect the company to improve the load factors through effective deployment of its capacity resulting into healthy margins over next two years. Growth potential remains intact, margins to normalise; maintain BUY While the macro factors for aviation like passenger traffic growth (up over 23% YoY) benign ATF prices (24% of revenues) continue to remain healthy, growing competition & limited capacity addition by the company would limit the margin expansion & net profitability, going forward. To factor that into account, we revise our earnings estimates downwards by 13% and 20% for FY17E and FY18E, respectively. However, the stock is still available at attractive valuations, being the largest private carrier. Hence, we maintain BUY rating with a revised target price of 750/share (i.e. valuing at 0.7x FY17E EV/sales, 6.5x EV/EBITDA, 7.0x PE). ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q1FY17 Q1FY17E Q1FY16 YoY (%) Q4FY16 QoQ (%) Comments Total Revenue Employee cost Fuel S&D Exp Other Ope costs Lease Rent EBITDA LP EBITDA Margin (%) bps bps While passenger growth remained in line with our estimates (up 4.5% YoY to 65.7 lakh), weak realisations during the quarter (down 6.5% YoY to 6996) hurt the topline growth More pilots hiring during the quarter to optimise the asset utilisations, pay hikes led to a sharp jump in employee cost during the quarter Fuel cost declined sharply by 19.2% on account of cheaper ATF prices, which were down 16.8% YoY Depreciation The depreciation charge for the quarter was higher due to a change in accounting policy whereby some of the costs with respect to checks and overhaul have been amortised over its useful life Interest Exceptional items NA -4.4 NA Exceptional loss mainly pertains to loss with respect to forex fluctuations Tax NA 0.0 NA PAT Key Metrics No of passengers (In mn) Yield per passenger ( ) 8, , , , Increase in the market share by other airlines led to moderate growth in the passenger traffic Lower ATF prices helped the company to lower ticket prices, which also aided robust growth in industry's passenger traffic Change in estimates FY17E FY18E ( Crore) Old New % Change Old New % Change Comments Revenue 22, , , , EBITDA 2, , , , EBITDA Margin (%) bps bps PAT 1, , , , We factor in lower realisation, going forward, led by lower cost advantage flowing from lower fuel prices We lower the margins by 75 bps and 130 bps for FY17E and FY18E, respectively, to factor in lower realisations EPS ( ) ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis Domestic market share on falling trend, down to 19% vs. 21.9% last year During the quarter, Jet s domestic market share has further come by 280 bps YoY to 19.1% led by a rise in fleet capacity by some players like SpiceJet. Barring FY12, where the KFA turmoil benefited all domestic carriers, Jet s market share has come down from a peak of 29.3% in Q4FY12 to 23.9% in Q4FY14 and further down to 19% in Q1FY17. However, with the stabilisation in the fleet capacity by other players and with the retuning of aircraft from Etihad, we expect the company to gain traction in market share, going forward. Exhibit 1: Domestic pax traffic grows at 5.4% CAGR in FY11-16 Exhibit 2: Q1FY17 domestic pax traffic grows 5.9% YoY In lacs FY11 FY12 FY13 FY14 FY15 FY16 In lacs Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Total Industry passeger traffic Pax carried Total Passengers Pax carried Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 3: Domestic market share trend (%) Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Market share (%) Exhibit 4: International passenger traffic grows faster at CAGR of 9.7% during FY11-16 Although domestic traffic growth has moderated during FY11-16, international passenger traffic has grown at a CAGR of 9.7% during the same period due to better margins and healthy demand along with benefit of strategic code share agreement with Etihad Airways (In lacs) FY11 FY12 FY13 FY14 FY15 FY16 International pax growth ICICI Securities Ltd Retail Equity Research Page 3

4 Exhibit 5: Consolidated quarterly revenue trend 6,000 5,000 4,000 3,000 2,000 1, Q1FY14 Q2FY Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q1FY17 consolidated revenue growth remains subdued During Q1FY17, the company s total consolidated revenue declined 1.3% YoY to 5,583 crore. While total passenger grew 4.5% YoY 6.6 million, domestic yield saw a weakness during the quarter due to rise in the competition Exhibit 6: Passenger and yield growth trend (10.0) (20.0) Q1FY Q2FY Q3FY Q4FY Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 (0.4) (15.8) (11.2) (1.2) (12.2) (9.3) (9.3) (6.4) (6.5) Revenues ( crore)- LHS Growth (%) - RHS Passenger growth (%) Yield growth (%) Exhibit 7: Margin trend (%) Consolidated margins for the quarter declined to 11.9% on account of a sequential rise in ATF prices. Further, higher employee cost also had an impact on the margins. However, with the onset of peak season, we expect margins to improve, going forward Q1FY14 Q2FY14 Q3FY14 Q4FY Q1FY Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 EBITDA Margin (%) Exhibit 8: Trend in ATF prices 90,000 During Q1FY17, average ATF prices declined 16.8% YoY, while it increased 13.1% QoQ due to a spike in the international crude basket. 80,000 70,000 60,000 50,000 50,958/kl 40,000 30,000 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Average ATF Prices (./per kl) ICICI Securities Ltd Retail Equity Research Page 4

5 Expect revenue CAGR of 3.4% during FY16-18E Jet Airways has reported revenue CAGR of 8.9% in FY11-16 led by a rebound in the economy, a favourable cost environment coupled with increased supply. However, in FY12-14, domestic passenger traffic growth moderated due to higher ticket prices given the high cost environment while international passenger traffic has grown at 7-8% annually. Although we remain positive over the next two or three years with an expected recovery in the economy coupled with a fall in ATF prices, we build in moderate revenue CAGR of 3.4% in FY16-18E on a consolidated basis for Jet Airways due to limited fleet additions and lower yields led by rise in the competitions from other players. Exhibit 9: Revenue growth trend (%) 25,000 20,000 16, , , , , , , ,000 14, ,000 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E - Revenues ( crore) - LHS Growth (%) - RHS Margins to remain healthy followed by benign ATF prices While FY14 and FY15 have remained challenging years for Jet Airways due to an adverse cost environment, FY15 saw an improvement led by a significant reduction in ATF prices. Although we expect average ATF prices to increase by 12-14% during FY17E, we expect OPM margins to remain above 10% assuming average Brent crude at $58/barrel. Exhibit 10: Margin trend (5.0) (10.0) (15.0) (20.0) (25.0) (0.2) 1.0 (0.6) FY11 FY12 FY13(4.1) FY14 FY15 FY16 FY17E FY18E (8.5) (9.6) (10.0) (21.5) OPM (%) NPM (%) ICICI Securities Ltd Retail Equity Research Page 5

6 Valuations While macro factors for aviation like passenger traffic growth (up over 23% YoY) benign ATF prices (24% of revenues) continue to remain healthy, growing competition & limited capacity addition by the company would limit the margin expansion and net profitability, going forward. To factor that into account, we revise our earnings estimates downwards by 13% and 20% for FY17E and FY18E, respectively. However, the stock is still available at attractive valuations, being the largest private carrier. Hence, we maintain BUY rating with a revised target price of 750/share (i.e. valuing at 0.7x FY17E EV/sales, 6.5x EV/EBITDA, 7.0x PE). Exhibit 11: Valuation matrix Sales Growth EPS Growth PE EV/EBITDA RoCE RoE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY NA NA NA FY LP NA FY17E NA FY18E NA Exhibit 12: One year forward EV/Sales graph ( Crore) Aug-07 Feb-08 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 EV 1.3x 1.1x 0.9x 0.7x 0.5x ICICI Securities Ltd Retail Equity Research Page 6

7 Recommendation History vs. consensus estimate ( ) 1, Jan-15 Mar-15 Jun-15 Aug-15 Oct-15 Jan-16 Mar-16 Jun Aug-16 (%) Price Idirect target Consensus Target Mean % Consensus with BUY Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Oct-08 Jet Airways and Kingfisher Airlines announced a joint alliance, which involved code-sharing on domestic and international flights, an interline agreement, joint fuel management, common ground-handling services and cross-selling flights through the global ticketing system Oct-08 Jet takes back all sacked 1900 employees on payroll Feb-09 Jet, JetLite come up with promotional basic fares of 300 and 1. Inks code share agreement with Malaysian Airliines Mar-09 The Sahara Group, promoter of Air Sahara, which was acquired by Jet Airways in 2007, takes the latter to court over default of dues worth 1,450 crore that was part of the buyout deal May-11 Bombay High Court directs Jet Airways to pay to pay 478 crore to Sahara India Feb-13 Etihad buys Heathrow slots from Jet Airways for US$70 million Apr-13 Jet Airways sells 24% stake to Etihad for $379 million Jun-13 Air France, KLM SA and Jet Airways sign cooperation agreement Jul-13 FIPB clears Jet-Etihad deal Oct-13 Etihad Airways wins Cabinet approval for minority stake purchase in Jet Airways May-14 Acting CEO of Jet Airways Ravishankar Gopal Krishanan quits the company with effect from May 2, 2014 May-14 Sebi exempts Etihad from making open offer May-14 Reports record quarterly loss of crore. The company names Cramer Ball (erstwhile CEO of Air Seychelles) as new CEO of the company. Jun-14 Etihad expands codeshare agrrement with Jet Airways bringing total number of services to 71 from 43 routes Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Goyal (Naresh) 31-Mar Etihad Airways 31-Mar Birla Sun Life Asset Management Company Ltd. 31-Mar BNP Paribas Asset Management India Pvt. Ltd. 31-Mar Reliance Nippon Life Asset Management Limited 31-Mar Life Insurance Corporation of India 31-Mar The Vanguard Group, Inc. 30-Jun Van Eck Associates Corporation 31-Jul TIAA Global Asset Management 30-Jun Tata Asset Management Limited 30-Jun Source: Reuters, ICICIdirect.com Research Recent Activity Buys Shareholding Pattern (in %) Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Promoter FII DII Others Sells Investor name Value Shares Investor name Value Shares BNP Paribas Asset Management India Pvt. Ltd Tata Asset Management Limited JM Financial Asset Management Pvt. Ltd Reliance Nippon Life Asset Management Limited TIAA Global Asset Management Birla Sun Life Asset Management Company Ltd UTI Asset Management Co. Ltd SBI Funds Management Pvt. Ltd Edelweiss Asset Management Ltd Religare Invesco Asset Management Company Private Limited Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 7

8 Financial summary Profit and loss statement Crore (Year-end March) FY15 FY16 FY17E FY18E Net Sales 20, , , ,764.7 Growth (%) Fuel Expenses 7, , , ,535.3 Employee Expenses 2, , , ,637.9 Selling Expenses 2, , , ,647.1 Lease Rentals 2, , , ,138.8 Other Operating costs 6, , , ,319.5 Total Operating Expenditure 20, , , ,278.6 EBITDA , , ,486.1 EBITDA Margin (%) Depreciation , ,026.3 Interest Other Income PBT , , ,352.9 Exceptionals -1, Total Tax Reported PAT -2, , , ,216.3 Growth (%) NA LP EPS ( ) Cash flow statement Crore (Year-end March) FY15 FY16P FY17E FY18E Profit after Tax -2, , , ,216.3 Add: Depreciation , ,026.3 (Inc)/dec in Current Assets Inc/(dec) in CL and Provisions Others CF from operating activities -2, , , ,070.3 (Inc)/dec in Investments (Inc)/dec in Fixed Assets , Others CF from investing activities , Issue/(Buy back) of Equity Inc/(dec) in loan funds 2, , , ,000.0 Dividend paid & dividend tax Inc/(dec) in Sec. premium Others , , ,492.9 CF from financing activities 3, , ,492.9 Net Cash flow Opening Cash 1, , , ,053.2 Closing Cash 2, , , ,193.6 Balance sheet Crore (Year-end March) FY15 FY16 FY17E FY18E Liabilities Equity Capital Reserves and Surplus -6, , , ,988.6 Total Shareholders funds -6, , , ,875.0 Total debt 11, , , ,134.9 Deferred Tax Liability Total Liabilities 5, , , ,259.9 Assets Gross Block 17, , , ,797.2 Less: Acc Depreciation 7, , , ,989.0 Net Block 9, , , ,808.2 Capital WIP Total Fixed Assets 9, , , ,808.2 Goodwill Investments Inventory , , ,092.1 Debtors 1, , , ,575.2 Loans and Advances 2, , , ,851.8 Cash 2, , , ,193.6 Total Current Assets 7, , , ,712.7 Creditors & Others 11, , , ,545.9 Provisions Total Current Liabilities 12, , , ,940.3 Net Current Assets -4, , , ,227.6 Application of Funds 5, , , ,259.9 Key ratios (Year-end March) FY15 FY16E FY17E FY18E Per share data ( ) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE NA NA NA NA RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value NA NA NA NA Solvency Ratios Debt / EBITDA Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 8

9 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 9

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