ICICI Direct recommended hold rating on Jet Airways with a target price of Rs 630 in its research report dated September 14, 2017.
ICICI Direct's research report on Jet Airways
Jet Airways reported a mixed set of Q1FY18 numbers. A key notable was that cost pressure continued amid rising competition from other carriers leading to a fall in margins. The company reported revenues in line with our estimates. However, EBITDA margins dropped sharply YoY on account of higher fuel and maintenance expenses Total revenues were up 11.6% YoY to Rs 6185 crore (vs. I-direct estimate: Rs 6,188 crore) led by 8.1% YoY growth in total passenger traffic. Passenger traffic growth stayed below industry growth mainly due to lack of capacity addition. Passenger load factor during the quarter was marginally up 70 bps YoY to 81.7% amid rising competition EBITDA margin of 6.5% was lower than our estimated margin of 7.7% mainly due to a sharp jump in fuel & maintenance costs. Fuel costs (i.e. 26% of revenues) were up 29.1% YoY to Rs 1636 crore. Maintenance cost also jumped sharply by 31.8% YoY to Rs 626 crore.
Macro factors for aviation like passenger traffic growth (up over 22% YoY) continue to remain healthy. This would take care of the rise in fleet supplies. With debt reduction of over ~Rs 1900 crore in FY17, we expect debt levels to come down further by Rs 750 crore over the next two years led by a healthy cost environment. Although we remain positive on the stock from a long term perspective, considering the recent run up in the stock we downgrade it to HOLD from BUY with a revised target price of Rs 630/share (i.e. valuing at two year forward P/E of 10.0x).
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