Centrum downgrades Jet Airways rating to 'hold'
The near-term outlook for Jet Airways remains challenging as the terror attacks on Mumbai have aggravated matters.
By ET Online |
MUMBAI: The near-term outlook for Jet Airways remains challenging as the terror attacks on Mumbai have aggravated matters and we are reducing our FY10E consolidated loss estimates by Rs 510 crore to Rs 790 crore, says Centrum Research.
"We believe Jet, like most airlines, would not be able to attract passengers. In our revised estimates, Jet will have 13 percent (YoY) fewer passengers to fly (both domestic and international) in Q4FY09, with many cancellations expected," it states.
Arresting this decline in FY10 may not be difficult and we expect a moderation of growth rate to 5.1 percent YoY (earlier growth expectation was 20.1 percent) even with a cut in fares in these circumstances. This trend contrasts with the decline seen post the 9/11 attacks when a much slower (about 3 years) recovery ensued.
We believe Jet will have to reduce ticket prices by 25 percent in H2FY09 over H1FY09 to stem the decline. Fortunately, ATF prices in India have been reduced from the levels of Rs 72.3/litre in Aug 2008 to about Rs 40/litre in Nov 2008 with a further cut in Dec 2008 already announced.
This in our estimate will allow Jet to erase its operational losses (EBITDAR) which amounted to Rs 433 crore in H1FY09 and make a profit of Rs 557 crore in H2FY09E such that the year's tally will rest at a profit of Rs 124 crore. In continuation of this performance, we expect EBITDAR to be Rs 540 crore in FY10E. This kind of return to profitability can drive Jet's valuations upwards.
However, prevailing negative travel advisories, will keep the stock price under check. We, therefore, downgrade the stock to Hold from Accumulate. Jet trades currently at Rs 46 on Mcap/flown km on a one-year rolling forward basis. Jet's stock currently trades on a FY09 P/B multiple of 0.4x.
"We believe Jet, like most airlines, would not be able to attract passengers. In our revised estimates, Jet will have 13 percent (YoY) fewer passengers to fly (both domestic and international) in Q4FY09, with many cancellations expected," it states.
Arresting this decline in FY10 may not be difficult and we expect a moderation of growth rate to 5.1 percent YoY (earlier growth expectation was 20.1 percent) even with a cut in fares in these circumstances. This trend contrasts with the decline seen post the 9/11 attacks when a much slower (about 3 years) recovery ensued.
We believe Jet will have to reduce ticket prices by 25 percent in H2FY09 over H1FY09 to stem the decline. Fortunately, ATF prices in India have been reduced from the levels of Rs 72.3/litre in Aug 2008 to about Rs 40/litre in Nov 2008 with a further cut in Dec 2008 already announced.
This in our estimate will allow Jet to erase its operational losses (EBITDAR) which amounted to Rs 433 crore in H1FY09 and make a profit of Rs 557 crore in H2FY09E such that the year's tally will rest at a profit of Rs 124 crore. In continuation of this performance, we expect EBITDAR to be Rs 540 crore in FY10E. This kind of return to profitability can drive Jet's valuations upwards.
However, prevailing negative travel advisories, will keep the stock price under check. We, therefore, downgrade the stock to Hold from Accumulate. Jet trades currently at Rs 46 on Mcap/flown km on a one-year rolling forward basis. Jet's stock currently trades on a FY09 P/B multiple of 0.4x.
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