Buy Jet Airways; target of Rs 610: Edelweiss

Jet Airways’ (JAL) Q1FY17 standalone profit was impacted by: a) higher-than-estimated drop in yield at 4.3% YoY—while domestic yield is facing pressure, international business is largely stable; b) higher-than-estimated non-fuel cost driven by increase in employee and S&D expenses. Improvement in profitability hinges on yield stabilisation coupled with reduction in cost/debt. Factoring in weak Q1, we prune FY17/FY18E EPS 25%/14%. Maintain ‘BUY’. Sustained pressure on yields is a key challenge.

Stabilisation of industry yields in the near term and secular trend in cost reduction/debt for JAL are key for improvement in profitability. Factoring in higher-than-expected drop in yields and inch up in cost we revise down FY17/FY18E EPS 25%/14%, respectively. The recent correction in the stock factors in these challenges and is currently trading at xx EV/EBITDAR. Hence maintain ‘BUY’ with revised TP of INR 610/share (INR 772 earlier). For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.