Jet Airways (JETAIR) 742

Result Update Rating matrix Rating : Hold Target : 7 Target Period : 12- months Potential Upside : -6% What s changed? Target Changed from 66 to 7 EPS FYE Changed from 59.7 to 65.5 EPS FY18E Changed from 74.4 to 7. Rating Unchanged Quarterly performance Q3FY18 Q3FY YoY (%) Q2FY18 QoQ (%) Revenue 6,623. 6,396. 3.5 6,128. 8.1 EBITDA 566. 686. (.5) 4. 36.1 EBITDA (%) 8.5 1.7-218 bps 6.8 +6 bps PAT 185. 299. -38.1 72. 6.9 Key financials Crore FY FY FY18E FY19E Net Sales 22,321 22,693 24,236 25,327 EBITDA 2,35 1,284 1,672 1,621 Net Profit 1,212 438 744 795 EPS ( ) 16.7 38.6 65.5 7. Valuation summary FY FY FY18E FY19E P/E 7.1 19.6 11.5 1.8 Target P/E 6.6 18.2 1.5 1. EV/EBITDA 6.2 11.3 8.6 8.9 EV/Sales.6.6.6.6 P/BV NA NA NA NA RoNW (%) NA NA NA NA RoCE (%) 47.7 53.4 42.3 36.1 Stock data Particular Amount ( crore) Mcap 8588.2 Debt (FY18E) 814.3 Cash & Invest (FY18E) 2237.5 EV 14455. 52 week H/L ( ) 645/332 Equity cap 113.6 Face value ( ) 1. Price performance 1M 3M 6M 12M SpiceJet 13.5 4.3 28.7 131.6 Jet Airways -.5 2.3 47.7 12.6 Research Analyst Rashesh Shah rashes.shah@icicisecurities.com Devang Bhatt devang.bhatt@icicisecurities.com February, 218 Jet Airways (JETAIR) 742 Healthy pax traffic but yields remain weak Jet Airway s operating revenues grew 1.2% YoY to 6412 crore, led by growth in passenger traffic (up 13.4% YoY to 7.7 mn) whereas yield per passenger declined 1.5% YoY to 7195. Other nonoperating income was down 63.5% YoY to 211 crore as last year other income included profit of 327 crore on sale and lease back transactions. As a result, total consolidated revenue grew 3.5% YoY 6623 crore (vs. I-direct estimate: 6584.5 crore) Despite a rise in fuel costs (up 27.1% YoY, 2.3% QoQ), total operating costs were up 6% YoY, QoQ due to lower employee costs, lease rentals and other operating costs due to healthy asset utilisations (up 4.2% YoY to 13 hours/day) and better load factor (up 44 bps YoY to 84%) As a result, EBITDA margin improved 5 bps QoQ to 8.5% (vs. I- direct estimate: 5.6%) while absolute EBITDA increased 36.1% QoQ to 566 crore (vs. I-direct estimate: 369 crore With a better operational performance ex-fuel, the company reported net profit of 185 crore vs. our estimated net profit of 25 crore. One should note that due to adoption of Ind-As, last year s net profit has been revised upwards to 299.9 crore against 6.4 crore Domestic market at.2% in sync with capacity share After falling consistently since Q4FY, the domestic market share of Jet has stabilised to ~.2% due to induction of wide body capacity in some key metro routes. With the stabilisation in fleet capacity by other players and induction of new fleets by Jet, we expect the company to gain traction in market share, going forward. The delivery of 75 fuel efficient aircraft B737-Max will commence from June 218 onwards. Cost rationalisation only key to sustain margins amid rise in supplies The past two years had witnessed a substantial expansion in margins mainly led by the sharp fall in ATF prices and reduction in ticket prices. Given Jet s operating cost is one of the highest, sustenance of margins would remain challenging for the company amid rising competition. The management has guided for a reduction of 12-% in non-fuel costs by 1) renegotiating maintenance contracts with effect from January 219 to reduce maintenance expenses, 2) renegotiating GDS contracts to reduce S&D cost, 3) densification of B777 aircraft (to increase its seats to 4 seats from 346 seats by 219), 4) inducting 25 fuel-efficient 737 Max aircraft between June 218 and March 22. Further, the company also aims to increase ancillary revenue by 25 crore. However, the benefits of all these measure would start accruing only from H2FY19 onwards. Valuations in line with fundamentals; maintain HOLD The macro factors for aviation like passenger traffic growth (up over 18% YoY) continue to remain healthy. This would take care of the rise in fleet supplies. With a debt reduction of over ~ 19 crore in FY, we expect debt levels to come down further by 75 crore over the next two years led by a healthy cost environment. Although we remain positive on the sector from a long term perspective, rising crude oil prices remain a nearterm risk to the company as the benefit of cost rationalisation will be visible only from H2FY19 onwards. Considering the recent run up in the stock, we continue to maintain HOLD rating on the stock with a revised target price of 7/share (i.e. valuing at two year forward P/E of 1.x). ICICI Securities Ltd Retail Equity Research

Variance analysis Q3FY18 Q3FY18E Q3FY YoY (%) Q2FY18 QoQ (%) Comments Total Revenue 6623. 6584.5 6396. 3.5 6128. 8.1 While passenger growth remained ahead of our estimates (up 13.7% YoY to 77 lakh), realisations remained weak during the quarter due to pricing pressure on international routes Employee cost 774. 758.5 735. 5.3 812. -4.7 Fuel 1964. 25. 46. 27. 33. 2.3 Higher crude prices led to sharp jump in fuel costs during the quarter S&D Exp 7. 69. 639. 9.5 656. 6.7 Other Ope costs 2. 218. 24. -8. 21.. Lease Rent 619. 69.3 6..5 61. 1.5 EBITDA 566. 368.7 686. LP 4. 36.1 EBITDA Margin (%) 8.5 5.6 1.7-218 bps 6.8 +6 bps Margins were impacted mainly due to higher fuel expenses on a YoY basis Depreciation 7.. 2. -3.1 4. 1.9 Interest 224. 195. 225. -.4 19..9 Exceptional items... NA. NA Tax. -1.. NA. NA PAT 185. 24.7 299. -38.1 72. 6.9 Key Metrics No of passengers (In mn) 7.7 7.3 6.77 13.7 7.29 5.6 With the induction of new aicraft in the domestic market, passenger growth improved during the quarter Gross yield per passenger ( ) 8,61.3 9,19.9 9,447.6-9. 8,46. 2.3 Change in estimates FY18E FY19E ( Crore) Old New % Change Old New % Change Comments Revenue 24,578. 24,236.1-1.4 24,544.7 25,326.7 3.2 EBITDA 1,572. 1,672.3 6.4 1,644.5 1,62.9-1.4 EBITDA Margin (%) 5.9 6.9 1 bps 6.7 6.4-3 bps PAT 678.5 744.3 9.7 845.5 795. -6. EPS ( ) 59.7 65.5 9.7 74.4 7. -6. Higher fuel prices and other operating costs continue to remain a concern for the company in the near term ICICI Securities Ltd Retail Equity Research Page 2

Company Analysis Domestic market at.2% in sync with capacity share After falling consistently since Q4FY, the domestic market share of Jet has stabilised to ~.2% due to induction of wide body capacity in some key metro routes. With the stabilisation in the fleet capacity by other players and induction of new fleets by Jet, we expect the company to gain traction in market share, going forward. The delivery of 75 fuel efficient aircraft B737-Max will commence from June 218 onwards. Exhibit 1: Jet domestic pax traffic grows 3.3% in FY vs. industry growth of 22.1% In lacs 12 1 8 6 4 2 6 5 FY12 65 5 FY13 614 147 FY14 76 5 FY 855 185 FY 144 191 FY Exhibit 2: Q3FY18 Jet domestic pax traffic grows 8.3% YoY In lacs 35 3 25 2 1 5 23 44 Q1FY 22 45 Q2FY 221 47 Q3FY 23 48 Q4FY 246 47 Q1FY 251 48 Q2FY 272 47 Q3FY 273 49 Q4FY 289 51 Q1FY18 288 52 Q2FY18 322 55 Q3FY18 Total Industry passeger traffic Source: Company, ICICIdirect.com, Research Pax carried Total Passengers Source: Company, ICICIdirect.com, Research Pax carried Exhibit 3: Jet s domestic market share trend (%) 3. 25. 2. 22.8 24.9 24.2 23.9 2.8 2.2 22.3 24.6 21.9 22.5 21.3 2.9 19.1 19.1.3 18.1.6 18.1.1. 1. Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY Q2FY Q3FY Q4FY Q1FY Q2FY Q3FY Q4FY Q1FY Q2FY Q3FY Q4FY Q1FY18 Q2FY18 Q3FY18 Market share (%) Exhibit 4: International passenger traffic grows at 8% CAGR during FY12- Although domestic traffic growth has moderated during FY12-, international passenger traffic has grown at a CAGR of 8% during the same period due to better margins and healthy demand along with benefit of strategic code share agreement with Etihad Airways (In lacs) 9 8 7 6 5 4 3 2 1 54.5 54.7 57.8 7.1 73.4 8.3 FY12 FY13 FY14 FY FY FY International pax growth ICICI Securities Ltd Retail Equity Research Page 3

Exhibit 5: Consolidated quarterly revenue trend Q3FY18 consolidated revenue growth remains flat Total consolidated revenue growth for Q3FY18 remained broadly in line with our estimate at 6623 crore led by healthy passenger growth of 13.4% YoY to 7.7 million. However, yield per pax remained weak amid a rise in competition and weak realisations in the international segment. Exhibit 6: Passenger and yield growth trend. 12.1 13.4 7,5 6, 4,5 3, 1,5-588 Q3FY 5687 Q4FY 5583 Q1FY 613 Q2FY 6396 Q3FY 626 Q4FY 6185 Q1FY18 6128 Q2FY18 6623 Q3FY18 1 5-5 1. 5. - (5.) (1.) 3.1 (6.4) Q3FY Q4FY.1 8.1 7.7 6.3 4.5 5.4 4.1 (3.1) (1.6) 3.4 (6.5) (3.9) -3.3-1.5 Q1FY Q2FY Q3FY Q4FY Q1FY18 Q2FY18 Q3FY18 Revenues ( crore)- LHS Growth (%) - RHS Passenger growth (%) Yield growth (%) Exhibit 7: Margin trend (%) Consolidated margins for the quarter declined further to 8.5% vs. 1.7% last year on account of a rise in ATF prices 2. 18.. 14. 12. 1. 8. 6. 4. 2...8 18.5 12.3.3 1.7 6.7 6.5 6.8 8.5 Q3FY Q4FY Q1FY Q2FY Q3FY Q4FY Q1FY18 Q2FY18 Q3FY18 EBITDA Margin (%) Exhibit 8: Trend in ATF prices In Q3FY18, average ATF prices continued to remain higher due to a spike in the international crude basket 9, 8, 7, 6, 5, 4, 3, 58,986/kl Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb- Aug- Feb- Aug- Feb- Aug- Feb-18 Average ATF prices (./kl) ICICI Securities Ltd Retail Equity Research Page 4

Expect revenue CAGR of 5.6% during FY-19E Jet Airways has reported a revenue CAGR of 6.3% during FY12- led by a rebound in the economy, favourable cost environment coupled with increased supply. However, during 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. We remain positive over the next two or three years with an expected recovery in the economy coupled with benign ATF prices. However, we build in moderate revenue CAGR of 5.6% in FY-19E on a consolidated basis for Jet Airways due to expected moderation in passenger traffic and lower yields led by a rise in competition from other players. Exhibit 9: Revenue growth trend (%) 3, 12. 25, 2, 19,72 2,966 22,321 22,693 24,236 25,327 1. 8. 6., 4. 2. 1, FY14 FY FY FY FY18E FY19E - Revenues ( crore) - LHS Growth (%) - RHS Margins to remain healthy followed by benign ATF prices While FY14 and FY have remained challenging for Jet Airways due to an adverse cost environment, FY saw an improvement led by a significant reduction in ATF prices. However, we expect margins to stabilise to around 6-7% over the next two years assuming the 5-7% rise in ATF prices. Exhibit 1: Margin trend. 1. 5. - (5.) (1.) (.) (2.) (25.) 1.5 5.7 6.9 5.4 6.4 3.6 1. 1.9 3.1 3.1 FY13(4.1) FY14 FY FY FY FY18E FY19E (9.6) (1.) (21.5) OPM (%) NPM (%) ICICI Securities Ltd Retail Equity Research Page 5

Valuations Macro factors for aviation like passenger traffic growth (up over 18% YoY) continue to remain healthy. This would take care of the rise in fleet supplies. With a debt reduction of over ~ 19 crore in FY, we expect debt levels to come down further by 75 crore over the next two years led by a healthy cost environment. Although we remain positive on the sector from a long term perspective, rising crude oil prices remain a nearterm risk to the company as the benefit of cost rationalisation will be visible only from H2FY19 onwards. Considering the recent run up in the stock, we continue to maintain HOLD rating on Jet with a revised target price of 7/share (i.e. valuing at two year forward P/E of 1.x). Exhibit 11: Valuation matrix Sales Growth EPS Growth PE EV/EBITDA RoCE RoE ( cr) (%) ( ) (%) (x) (x) (%) (%) FY 22321. 6.5 16.7 LP NA 7.1 NA NA FY 22693. 1.7 38.6-63.9 19.6 19.6 NA NA FY18E 24236.1 6.8 65.5 69.9 11.5 11.5 NA NA FY19E 25326.7 4.5 7. 6.8 1.8 1.8 36.1 NA Exhibit 12: One year forward EV/Sales graph 35 3 25 2 ( Crore) 1 5 Feb-1 Aug-1 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Aug-14 Feb- Aug- Feb- Aug- Feb- Aug- Feb-18 EV 1.3x 1.1x.7x.5x.3x ICICI Securities Ltd Retail Equity Research Page 6

Recommendation History vs. consensus estimate ( ) 1, 75 5 25 Feb- Apr- Jun- Jul- Aug- Oct- Dec- Jan- Mar- Apr- Jun- Jul- Sep- Nov- Dec- Feb- Mar- May- Jun- Aug- Sep- Nov- Dec- Feb- 18 1. 9. 8. 7. 6. 5. 4. 3. 2. 1.. (%) Price Idirect target Consensus Target Mean % Consensus with BUY Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Oct-8 Feb-9 Mar-9 May-11 Event Jet takes back all sacked 19 employees on payroll Jet, JetLite come up with promotional basic fares of 3 and 1. Inks code share agreement with Malaysian Airliines The Sahara Group, promoter of Air Sahara, which was acquired by Jet Airways in 27, takes the latter to court over default of dues worth 1,45 crore that was part Bombay of the High buyout Court deal directs Jet Airways to pay to pay 478 crore to Sahara India Feb-13 Etihad buys Heathrow slots from Jet Airways for US$7 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, 214 May-14 Sebi exempts Etihad from making open offer May-14 Reports record quarterly loss of 23.5 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 Nov- Jet Airways signs a co-operation agreement with Air France KLM Top 1 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Goyal (Naresh) 3-Sep- 51. 57.9. 2 Etihad Airways 3-Sep- 24. 27.3. 3 Aditya Birla Sun Life AMC Limited 31-Oct- 3.6 4.. 4 Reliance Nippon Life Asset Management Limited 3-Sep- 3.5 4..7 5 Life Insurance Corporation of India 3-Sep- 2.1 2.4. 6 HDFC Asset Management Co., Ltd. 31-Oct-.6.7.3 7 The Vanguard Group, Inc. 31-Oct-.6.6. 8 Kotak Mahindra Asset Management Company Ltd. 31-Oct-.6.6.1 9 SBI Funds Management Pvt. Ltd. 31-Oct-.5.6. 1 McKinley Capital Management, LLC 31-Aug-.4.5. Shareholding Pattern (in %) Sep- Dec- Mar- Jun- Sep- Promoter 51. 51. 51. 51. 51. FII 4. 3.5 2.8 6.6 5.7 DII 9.3 8.6 1.3 9.7 11.1 Others 35.8 36.9 35.8 32.7 32.2 Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares Reliance Nippon Life Asset Management Limited 5.37.73 Fidelity Management & Research Company -.6 -.8 HDFC Asset Management Co., Ltd. 2.78.31 Sundaram Asset Management Company Limited -.54 -.7 JM Financial Asset Management Pvt. Ltd. 1.2.13 Acadian Asset Management LLC -.39 -.5 Edelweiss Asset Management Ltd. 1.8.12 First Trust Advisors L.P. -.41 -.5 Kotak Mahindra Asset Management Company Ltd..9.1 Principal PNB Asset Management Company Ltd. -.22 -.3 Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 7

Financial summary Profit and loss statement Crore (Year-end March) FY FY FY18E FY19E Net Sales 22,321. 22,693. 24,236.1 25,326.7 Growth (%) 6.5 1.7 6.8 4.5 Fuel Expenses 5,43.4 5,936. 6,786.1 7,91.5 Employee Expenses 2,532.3 3,141. 3,.7 3,419.1 Selling Expenses 2,36.7 2,533. 2,544.8 2,659.3 Lease Rentals 2,285.7 2,428. 2,569. 2,684.6 Other Operating costs 7,388.6 7,371. 7,513.2 7,851.3 Total Operating Expenditure 19,97.7 21,49. 22,563.8 23,75.8 EBITDA 2,35.3 1,284. 1,672.3 1,62.9 EBITDA Margin (%) 1.5 5.7 6.9 6.4 Depreciation 996.2 888. 692. 75.8 Interest 885. 853. 886. 758. Other Income 585. 714. 65. 638. PBT 1,54.1 257. 744.3 795. Exceptionals 148. 181... Total Tax.... Reported PAT 1,211.8 438. 744.3 795. Growth (%) LP -63.9 69.9 6.8 EPS ( ) 16.7 38.6 65.5 7. Cash flow statement Crore (Year-end March) FY FY FY18E FY19E Profit after Tax 1,211.8 438. 744.3 795. Add: Depreciation 996.2 888. 692. 75.8 (Inc)/dec in Current Assets -288.6 847.8-254.8-9.1 Inc/(dec) in CL and Provisions 347.7-3.4-268.5-7.9 Others -929.2-44. -1,18.1-641.8 CF from operating activities 1,338. 1,956.4-15.1 512.1 (Inc)/dec in Investments 59.7 82... (Inc)/dec in Fixed Assets -1,481.2-1,525.7-192. -15.8 Others 9.2 9.2 9.2 9.2 CF from investing activities -812.4-1,284.5-32.8 53.4 Issue/(Buy back) of Equity.... Inc/(dec) in loan funds -1,265.1-2,83.6 8. -25. Dividend paid & dividend tax.... Inc/(dec) in Sec. premium.... Others 2.5 2,212.7 32.8-3.4 CF from financing activities -1,112.6-6.9 832.8-43.4 Net Cash flow -586.9 54.1 694.9 2.1 Opening Cash 2,75.5 1,488.5 1,542.6 2,237.5 Closing Cash 1,488.5 1,542.6 2,237.5 2,399.5 Balance sheet Crore (Year-end March) FY FY FY18E FY19E Liabilities Equity Capital 113.6 113.6 113.6 113.6 Reserves and Surplus -5,324.1-5,13.5-4,269.2-3,474.1 Total Shareholders funds -5,21.5-4,899.9-4,5.6-3,36.5 Total debt 1,134.9 7,34.3 8,14.3 7,854.3 Deferred Tax Liability.... Total Liabilities 4,924.4 2,44.5 3,948.7 4,493.8 Assets Gross Block,767.2,129.6,629.6,229.6 Less: Acc Depreciation 7,956.5 8,844.5 9,536.5 1,242.4 Net Block 8,81.7 7,285.1 7,93.1 6,987.2 Capital WIP.... Total Fixed Assets 8,81.7 7,285.1 7,93.1 6,987.2 Goodwill.... Investments 1,9.4 1,261.4 1,261.4 1,261.4 Inventory 1,64.1 56. 54.4 633.2 Debtors 1,665.9 1,376.2 1,596.5 1,672.9 Loans and Advances 3,88.6 2,632.6 3,.7 3,292.5 Cash 1,488.5 1,542.6 2,237.5 2,399.5 Total Current Assets 7,37.1 6,57.4 7,525.1 7,998.1 Creditors & Others 11,961. 11,665.3 11,36.4 11,6.8 Provisions 411.8 534.1 57.4 596.1 Total Current Liabilities 12,372.8 12,199.4 11,93.8 11,752.9 Net Current Assets -5,65.7-6,142. -4,45.7-3,754.8 Application of Funds 4,924.4 2,44.5 3,948.7 4,493.8 Key ratios (Year-end March) FY FYE FY18E FY19E Per share data ( ) EPS 16.7 38.6 65.5 7. Cash EPS 19.4 11.7 12.6 13.2 BV -458.7-431.3-365.8-295.8 DPS.... Cash Per Share 131. 135.8 197. 211.2 Operating Ratios (%) EBITDA Margin 1.5 5.7 6.9 6.4 PBT / Total Operating income 4.7 1.1 3.1 3.1 PAT Margin 5.4 1.9 3.1 3.1 Inventory days.4 8.1 8.1 9.1 Debtor days 27.2 22.1 24. 24.1 Creditor days 195.6 187.6 1.1.8 Return Ratios (%) RoE NA NA NA NA RoCE 47.7 53.4 42.3 36.1 RoIC -8.8 456.2-45.2-218.9 Valuation Ratios (x) P/E 7.1 19.6 11.5 1.8 EV / EBITDA 6.2 11.3 8.6 8.9 EV / Net Sales.65.64.6.57 Market Cap / Sales.4.4.4.3 Price to Book Value NA NA NA NA Solvency Ratios Debt / EBITDA 4.3 5.7 4.8 4.8 Debt / Equity -1.9-1.5-2. -2.3 Current Ratio.6.5.6.7 Quick Ratio.3.3.3.4 ICICI Securities Ltd Retail Equity Research Page 8

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: >%/2% for large caps/midcaps, respectively, with high conviction; Buy: >1%/% for large caps/midcaps, respectively; Hold: Up to +/-1%; Sell: -1% 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 4 93 research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 9

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