Upside limited for Jet if fuel risk persists, say analysts

Jet Airways BSE | NSE 29/05/12 Are Mutual Funds betting on Jet Airways?

Moneycontrol Bureau

Analysts maintain a 'cautious' outlook on Jet Airways as the airline enters its weakest quarter in terms of load factors. Besides this, fuel which dominates 2/3rd of the operating cost to an airline remains a larger worry if there is a further rise from its current levels of Rs 58,000 a kilolitre.

Problems at Jet don't seem to end here. The outcome of its ongoing court case with the Sahara Group over tax liability issue could be a key catalyst for the Jet stock. The airline took over Air Sahara in 2007 (now JetLite) and Sahara dragged it to court arguing that income tax pertaining to the airline prior to the takeover should be borne by Jet.

The carrier is already in the process of commercially exploiting its 2.5 acre land at Bandra-Kulra-Complex. "If Jet signs a deal with Godrej Properties to develop its land at Bandra-Kurla Complex, it will be able to repay the debt taken to buy this land, which will reduce its liabilities to some level," said an analyst.

Jet pays an interest of around Rs 1,000 crore towards working capital debt and aircraft purchase loans YoY.

Here are a few takeaways from brokerage recommendations on the stock.

HSBC Global Research

• As Indigo is all set to fly international from September 1, price competition on international routes could spell double trouble for Jet.
  
• Due to irrational pricing by Air India, Jet could not improve yields to cover cost in Q1- a situation that the airlines warn may persist in Q2 as well
  
• We raise our FY12 recurring loss forecast to  Rs 3.4 billion from Rs 1.3 billion earlier due to a very weak outlook for its subsidiary Jetlite and higher fuel price assumption for the Group.
  
• These reasons form the premise for HSBC to maintain a neutral rating with a target price of Rs 500.

ICICI Direct

• We expect 16% revenue CAGR till FY13 as demand would continue to outpace supply growth on healthy traffic.
• However, over the medium term, the company may continue to witness pressure in domestic yields due to the lean season and competitive pricing environment.
• We assigne a 'hold' rating on the stock with a target price of Rs 520

 

Jet Airways	FY11	FY12(E)	FY13(E)
Revenues (cr)	14,528	17,043	18,192
EBITDA	1,564	1,221	1,807
PAT (loss)	(288)	(338)	190

Source:HSBC

Shaheen Mansuri
shaheen.mansuri@network18online.com

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