Buy Jet Airways; target of Rs 548: Edelweiss

Edelweiss' research report on Jet Airways

Jet Airways (JAL) posted poor operational Q1FY18 with EBITDAR falling 16% YoY dented by sustained stress in Gulf region and higher fuel cost. Key highlights: 1) subdued RPKM growth of 10% YoY lagged Indigo and SpiceJet (SJ); 2) PLF at 82% too lagged peers (Indigo: 88%, SJ: 94%) and RASK was flat compared to 6%/4% growth for Indigo/SJ; and 3) slight improvement in non-fuel CASK was offset by spurt in fuel cost. Higher international exposure (60% capacity) is a hurdle in JAL benefiting from favourable domestic aviation growth. Elevated cost and oil-led shock in Gulf further stress profitability (negative RASK–CASK for 5th quarter). We believe, JAL’s EPS is most vulnerable to rise in ATF price (10% swing impacts EPS 90%), significantly exposing its already leveraged balance sheet. Hence, we downgrade to ‘HOLD’ with revised TP of INR548 (INR615 earlier), 7.5x FY19E EV/EBITDAR.

Outlook
We factor in lower growth (FY17-19E EBITDAR CAGR at 7%; Indigo: 29%, SJ: 24%) as international operations are likely to continue to struggle. Distressed profitability amidst adverse cost structure (CASK ex-fuel at 60% higher than Indigo) renders balance sheet vulnerable. We value JAL at 7.5x FY19E EV/EBITDAR and downgrade to ‘HOLD’ from ‘BUY. We have resumed coverage on the stock and pruned FY19E EPS 14%. For all recommendations report, click here

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