Jet Airways an underperformer: SSKI Securities

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Jet Airways an underperformer: SSKI Securities

Broking house, SSKI Securities has maintained underperformer rating on Jet Airways.

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Broking house, SSKI Securities has maintained underperformer rating on Jet Airways .

SSKI Securities report on Jet Airways:

In line with our thesis for an underperformer call, Jet Airways continues to reel under competitive intensity and has posted a loss for the second consecutive quarter. For Q2FY07, Jet has reported a loss of Rs 551 million; however, the real damage is highlighted by an EBITDA loss of Rs 1,242 million (EBITDA profit of Rs 2,198 million in Q2FY06) and the fact that domestic operations have also slipped into the red with an EBITDA loss of Rs 193 million. This can be attributed to lower load factors, a higher proportion of discounted fare tickets (65% compared to 40% in Q2FY06), an unprecedented surge in ATF prices, limited ability to pass on the rise in fuel prices due to intense competition and losses from international operations. Q2 is typically the worst quarter for airlines and load factors tend to be lower compared to that in other quarters. However, the steep 620bp yoy decline in domestic load factors seen by Jet in Q2FY07 underlines that poor performance has been more a function of the tough business environment. Revenues in the domestic business grew 17% yoy on the back of an 8% yoy rise in passenger traffic and 8% increase in domestic yields (driven by fuel surcharges). Losses from international operations increased to USD 25.6 million in Q2FY07 from USD 15.5 million in Q1FY07 due to introduction of new routes and additional frequencies."

"With existing players adding capacity and new low cost carriers set to take wings in the domestic skies, we do not see any let up in competitive intensity in the near term. However, with the industry estimated to lose ~USD 300 million in FY07, we expect some rationality in pricing going forward. Also, the reduction in ATF prices should provide added relief. Further, Q3 and Q4 are traditionally stronger quarters for the industry. Thus, 2HFY07 is expected to be better than 1HFY07 for Jet Airways. The steep decline in load factors seen in Q2FY07 could also have been driven by the hike in fares as a result of fuel surcharges introduced by the airlines apart from seasonality. Thus, we believe Jet will have very limited room to hold on to the improved yields, as competition might cut prices to increase load factors. At Rs 618, the stock trades at 29.1x FY08E earnings and 7.7x EV/ EBITDA. The stock has underperformed the market by 125% (the sharpest for a top-tier company) since our underperformer call on 16 June 2005. Maintain Underperformer."