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Rating: HOLD
Jet airways reported a PAT loss of Rs. 1040 crores in Q4 FY18 with a marginal improvement in operating revenue to Rs. 6196 crores vs Rs. 5782 crores in Q4 FY17, a growth of 8.2%. Net revenue was down by 1.46% on account of declining non-operating revenue from Rs. 692 crores in Q4 FY17 to Rs. 130 crores in Q4 FY18. A loss of Rs. 638 crores was reported at the EBITDA level in Q4 FY18 primarily due to rising fuel prices compared to profit of Rs. 919 crores in Q4 FY17. We expect one more quarter of suboptimal results post which stabilization of crude price and cask reduction efforts shall aid to move towards profitability.
We opine to Hold the stock at current levels and wait until Q2 FY19 results to review jets cost reduction efforts.
1. Financial Highlights:
Jet reported a loss of Rs. 1040 crores in Q4 FY18 vs a profit of Rs. 583 crores in Q4 FY17. The quarter was adversely impacted due to the following reason - Increase in fuel prices Rs. 366 crores -Mark to Market adjustments due to weaker rupee Rs. 156 crores -One time maintenance charge Rs. 253 crores While its capacity deployed increased 10.1 %and the number of passengers grew 11.8%, the total revenue went up only 8.1% as average revenue per passenger declined by 1%. . 2. Order book Jet Airways placed an order for additional 75 units of 737 aircrafts taking the total order book to 150 units. The induction of these aircrafts will begin in June with 2 aircrafts and a total of 11 aircrafts being added by the end of FY19. Boeing 737 MAX airplanes are not only fuel efficient but will also help to deliver differentiated and world class customer experience. This would bring the total fleet size to 131 aircrafts from current capacity of 120 aircrafts of which 119 are operational.
3. Debt Level
As of March 2018 the gross debt stood at Rs. 8424 crores of which aircraft debt stands at Rs. 2054 crores and over 65% off the total debt is denominated in US dollar. The Net debt stands at Rs. 8149 crore as of March 2018. The company expects an increase in debt level in next one to two quarters as the high cost is adversely impacting its cash flow however; efforts are taken to reduce the debt further in long run.
4. Non-fuel CASK (Cost per available seat/KM) reduction plan update:
Non fuel CASK has reduced from Rs. 3.21 in Q4 FY17 to Rs. 3.17 in Q4 FY18 and the company is determined to reduce the non-fuel CASK by 10% - 15% over the course of 10 quarters with FY17 being the base at Rs. 3.23 However, non-fuel CASK has gone up by Rs. 0.15 from Rs. 3.02 in Q3 FY18 on account of increase in variable rental, increase in overflying charges on account of 3 new overseas flight routes and increase in certain effect charges.
5. One time maintenance charge of Rs. 253 crores A wide body aircraft had gone in the shop visit as the aircraft is not included in power by the hour arrangement. In total there are 9 aircrafts (18 engines) that are not included in this arrangements of which 1/3 have already gone for shop visits. Such one-time cost can be expected recurring in next 9 – 12 months. 6. Price elasticity in market As price elasticity depends on various factors/markets, the management was not comfortable sharing when a price hike is possible given the current oil prices at $80 a barrel. However, jet has a large share of its traffic comprising of corporate passengers who are less price sensitive and the price hike would not be as difficult as its competitors.
Disclaimer: This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that the facts stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors, Officers or Employees shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees may have a position or may otherwise be interested in the investment referred in this document. This is not an offer or solicitation to buy, sell or dispose off any securities mentioned in this document. Copyright © 2017 Pankaj Mangaldas Securities pvt. ltd. , All rights reserved. Registered Office 701, PJ Tower, Dalal Street, Mumbai - 400023 Corporate Office 411 Atlantic Commercial Tower, R.B Mehta road, Ghatkopar (E), Mumbai – 400077 Get in touch: +91 (22) 2501-2333 | info@pmsec.in | www.pmsec.in
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