Buy Jet Airways; target of Rs 490: ICICI Direct

ICICI Direct's research report on Jet Airways

Jet Airways is more focused on the international segment (inbound and outbound traffic) than the domestic segment as the international segment is more stable and offers higher margins than the domestic segment. Further, it also provides a natural hedge against currency weakness vs. the dollar. In FY11-16, the international segment has outpaced the domestic segment with revenue CAGR of 9.7% vs. domestic segment (Jet + JetLite) revenue CAGR of 5.4% in FY11-16. The revenue share of the international segment as of FY16 was at 55%.

While macro factors for aviation like passenger traffic growth (up over 23% YoY) benign ATF prices (24% of revenues) continue to remain healthy, growing competition & limited capacity addition by the company would limit the margin expansion & net profitability, going forward. To factor that into account, we revise our earnings estimates downwards by 30% and 25% for FY17E and FY18E, respectively. However, post corrections, the stock is now available at attractive valuations. Hence, we maintain BUY recommendation with a revised target price of Rs 490/share (i.e. valuing at one year forward P/E of 6.0x).