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Last Updated : Sep 01, 2018 02:17 PM IST | Source:

Jet Airways sinks 65% YTD for all right reasons; is it oversold at current levels?

The airline has been in the news for its weak financial health

Sunil Shankar Matkar
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Jet Airways has been dogged by headwinds synonymous with the aviation sector - higher fuel cost, corporate governance and weak earnings.

"Partnership with Etihad Airways has also hurt Jet's own operating environment. Recent probes on siphoning of funds by promoters, deferments in publishing audited results and resignation by the chairman of audit committee pre results raise questions on corporate governance of the company," said Vineeta Sharma, Head of Research, Narnolia Financial Advisors .

Prashanth Tapse, AVP Research, Mehta Equities feels high fuel cost, lower than expected quarterly earnings with EBITDA down by 98 percent YoY, despite 4 percent passenger volume growth & 1 percent decline in non-fuel CASK (Cost per Available Seat-Kilometer) and lower RASK (Revenue per Available Seat-Kilometer) which has triggered the fall in the recent times.


Lacklustre earnings

The airline company posted loss of Rs 1,323 crore in Q1FY19 against loss of Rs 1,045 crore in Q4FY18, which was largely due to weak operational performance including higher fuel cost.

Also Read: Jet Airways losing ground among international fliers

In Q1FY19, it has posted losses not only on operating level but also net profit level mainly due to increase in cost pressures led by escalating fuel cost and foreign exchange loss.

SpiceJet reported loss at Rs 38 crore in June quarter against profit of Rs 46 crore in previous quarter and IndiGo Q1 profit fell 97 percent YoY to Rs 28 crore against 73 percent decline in Q4 profit to Rs 117.6 crore.

Apart from exponential hike in crude prices and continuous loss making quarters, head-on competition from IndiGo and SpiceJet and highly leveraged balance sheet coupled with tough debt repayment schedule also caused selling pressure.

Earlier this month, Jet came out with a guidance that they have only 60-day worth of cash to run the normal operations of the airlines, which has led to plunge in share price by approximately 20 percent intraday.

Media reports said that the the Income Tax department was probing a land deal between the airline and Godrej Buildcon, a subsidiary of Godrej Properties. The Naresh Goyal-led airline had reportedly received a ‘monetary consideration’ to the tune of Rs 1,725 crore from the developers as part of a land development deal.

Additionally, the company has been in the news for financial troubles as well as a probe into alleged siphoning of funds by promoters.

Experts are divided in their opinion as half are saying it is oversold or near bottoming out while others feel it is expected to correct further till the dust settles down.

They used technical as well as fundamental logics while analysing the stock.

"Although company has chalked out a cost reduction programme of more than Rs 2,000 crore over two years along with debt reduction plan but our view is that it will take some more time for stock to completely bottom out from the present level," Astha Jain, Senior Research Analyst, Hem Securities, told Moneycontrol.

She feels that that stock can move down further till level of Rs 260.

"If stock breaks crucial support of Rs 260 then it can run southwards till the level of Rs 200-210. Hence we advise investors to wait before taking any fresh entry in the stock," she added.

The stock touched its 52-week low of Rs 261.60 on August 10 and is a 7 percent away from that level now.

Jet cracked 65 percent in 2018 for all right reasons, said Sumit Bilgaiyan, Founder of Equity99 who also doesn't believe the stock is oversold at current levels. "There is high probability for the stock correct more if businesses didn't pick up & crude prices remain to be unstable."

He has a neutral rating on stock with target price of Rs 275.

Prashanth Tapse, AVP Research, Mehta Equities also said Jet Airways is taking support at weekly trend line and RSI is in the oversold zone in weekly charts.

He expects the stock to go up from here as every time this stock goes in oversold zone it gives a huge pull back cover up rally.


AK Prabhakar, Head of Research, IDBI Capital Markets & Securities, told Moneycontrol that the airline is the most difficult business world over and having cost in control is the best way to run this business.

“Jet Airways hardly makes a profit and in difficult times losses are widening and with huge debt and regular fund infusion this company is finding it difficult to turnaround,” he said.

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First Published on Sep 1, 2018 10:11 am
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