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Jet Airways: FY07 ends on a strong note - Views on News from Equitymaster
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Jet Airways: FY07 ends on a strong note
Jun 29, 2007

Performance summary
  • Sales grew by a healthy 23% YoY and 25% YoY in 4QFY07 and FY07 respectively, driven primarily by international operations
  • EBITDAR margins expand by 400 basis points (4%) to 23% in 4QFY07 on account of lower fuel and selling expenses
  • Adjusted PAT for 4QFY07 stood at Rs 880 m, compared to a loss of Rs 432 m during the previous year.
  • Load factor remained stable at 72%; decline in cost per ASKM (2%) for the quarter

    Financial Snapshot
    Particulars (Rs m) 4QFY06 4QFY07 Change FY06 FY07 Change
    Financial performance - Standalone numbers
    Net Sales 16,059 19,783 23.2% 56,458 70,578 25.0%
    Expenditure 12,982 15,184 17.0% 42,833 60,499 41.2%
    Operating Profit (EBITDAR) 3,078 4,599 49.4% 13,625 10,079 -26.0%
    EBITDAR margins 19.2% 23.2% - 24.1% 14.3% -
    Lease rentals 1,221 1,752 43.6% 4,340 6,458 48.8%
    Other income 737 108 -85.4% 1,711 1,325 -22.6%
    Interest 630 530 -15.8% 2,416 2,402 -0.6%
    Depreciation 1,060 1,210 14.1% 4,064 4,141 1.9%
    Profit before tax 904 1,214 34.4% 4,516 (1,597) -
    Tax 1,338 334 -75.0% 2,702 234 -91.3%
    Extraordinary items 2,706 0 - 2,706 2,111 -22.0%
    Net profit 2,272 880 -61.3% 4,520 280 -93.8%
    Net profit margin (%) 14.1% 4.4% - 8.0% 0.4% -
    No. of Shares 86.3 86.3
    Price to book value (P/BV) 3.1
    Price to sales (P/S) 1.0
    Operating parameters
    ASKMs (m) 3906 4,679 19.8% 13,300 17,698 33.1%
    RPKMs (m) 2813 3,396 20.7% 9,576 12,307 28.5%
    Revenue passengers (m) 2.67 2.71 1.5% 9.56 10.73 12.2%
    Load factor 72.0% 72.6% - 72.0% 69.5% -
    Break-even load factor 67.2% 67.1% - 71.4% -
    Yield (Rs/RPKM) 4.81 4.73 -1.7% 5.00 4.82 -3.6%
    Cost per ASKM (Rs) 3.23 3.17 -1.9% 3.26 3.44 5.5%
    No. of employees 8,727 10,590 21.3% 8,727 10,590 21.3%
    Note: For glossary please click on the following link
    Click

    What has driven performance in 4QFY07?
    Overall Performance: After 5 quarters of turbulent performance, Jet has reported strong performance during 4QFY07. While the topline grew by 23% YoY, EBITDAR witnessed a jump of 49% YoY. The strong performance at the EBITDAR levels was on account of a 400 basis point expansion in EBITDAR margins, bolstered by lower fuel and selling expenses (refer table below). The average staff numbers increased from 8,727 to 10,590 on account of expansion in the level of operations. As a result, employee cost (as a percentage of sales) went up by 130 basis points (1.3%).

    Cost break-up
    as a % of sales 4QFY06 4QFY07 FY06 FY07
    Employee cost 11.8% 13.1% 10.0% 13.3%
    Fuel expenses 30.1% 27.9% 29.7% 34.4%
    Commission on sale of tickets 10.1% 8.0% 9.2% 7.9%
    Other selling and distribution cost 4.4% 3.9% 3.7% 3.4%
    Other expeses 24.5% 23.9% 23.2% 26.7%

    Lease rentals increased by 44% YoY as the company acquired/leased 9 new aircrafts. Fall in other income and increase in lease rentals led to a slower growth at the PBT level (34% YoY). In 4QFY06, Jet had booked profit on the sale and lease back of 4 aircrafts amounting to Rs 2.7 bn. Adjusting for the same, the company reported a loss to the tune of Rs 434 m, compared to a profit of Rs 880 m in the 4QFY07.

    Domestic operations: Domestic operations, which accounts for 76% of the total revenues, witnessed a modest growth of 8%, compared to the industry growth of around 35%. ASKMs on the domestic operations grew by a mere 1%, implying no significant flight additions. In fact, the company has discontinued its flights on some of the loss marking routes. Price rationalisation in the domestic market enabled the company to increase its yields by 13% YoY. As a result, EBITDAR margins for the domestic operations increased from 21.9% in 4QFY06 to 24.1% in 4QFY07.

    Domestic operations
    Particulars (Rs m) 4QFY06 4QFY07 Change FY06 FY07 Change
    Finacials
    Net Sales 13,926 15,094 8.4% 49,679 57,004 14.7%
    Expenditure 10,873 11,455 5.4% 36,160 47,908 32.5%
    Operating Profit (EBITDAR) 3,053 3,639 19.2% 13,519 9,096 -32.7%
    EBITDAR margins 21.9% 24.1% - 27.2% 16.0% -
    Profit before tax* 1,347 1,183 -12.2% 6,230 311 -95.0%
    Operating parameters
    ASKMs (m) 2,956 2,985 1.0% 13,300 17,698 33.1%
    RPKMs (m) 2,182 2,098 -3.8% 9,576 12,307 28.5%
    Revenue passengers (m) 2.53 2.43 -4.0% 9.56 10.73 12.2%
    Load factor 73.8% 70.3% - 72.0% 69.5% -
    Break-even load factor 65.3% 63.5% - 71.4% -
    Yield (Rs/RPKM) 6.38 7.19 12.7% 5.19 4.63 -10.7%
    Cost per ASKM (Rs) 3.68 3.84 4.3% 2.72 2.71 -0.4%

    International operations: International revenues more than doubled in 4QFY07 on account of network expansion. The Delhi-Bangkok service launched in 4QFY07 began with a robust 71% load-factor. Besides, Jet also launched services on the Kolkata-Bangkok route during the quarter. The Delhi-Kathmandu route continues to remain Jetís legacy route with high load factors (91% in 4QFY07). The overall load factor for international witnessed a 10% increase to 76.6%. As a result, the gap between load factor and break-even factor reduced to a marginal 0.6%, compared to 16.9% in 4QFY06. EBITDAR margins for the international operations stood at a healthy 20.5%, compared to 1.1% during the previous year.

    International operations
    Particulars (Rs m) 4QFY06 4QFY07 Change FY06 FY07 Change
    Finacials
    Net Sales 2,134 4,689 119.7% 6,780 13,574 100.2%
    Expenditure 2,110 3,728 76.7% 6,673 12,590 88.7%
    Operating Profit (EBITDAR) 24 961 3904.2% 107 984 819.6%
    EBITDAR margins 1.1% 20.5% - 1.6% 7.2% -
    Profit before tax* (443) 31 -107.0% (1,713) (1,908) 11.4%
    Operating parameters
    ASKMs (m) 1,250 2,059 64.7% 2,617 5,543 111.8%
    RPKMs (m) 631 1,298 105.7% 1,701 3,770 121.6%
    Revenue passengers (m) 0.15 0.28 86.7% 0.44 0.83 88.6%
    Load factor 66.5% 76.6% - 65.0% 68.0% -
    Break-even load factor 83.4% 76.0% - 87.0% 79.7% -
    Yield (Rs/RPKM) 2.82 3.01 6.7% 2.97 2.94 -1.0%
    Cost per ASKM (Rs) 2.35 2.28 -3.0% 2.94 2.35 -20.1%

    Update on JetLite: Air Sahara, now rechristened as JetLite will cater to price sensitive travelers and first time travelers. Presently, 17 out of Air Saharaís aircrafts are flying with rest expected to commence operations by Oct-07. Some of the initiatives undertaken by Jet to prune down the operating cost include cutting down the headcount by 50%, reduction in rent on CRJ aircrafts, releasing of premises and office spaces not required and moving acquired aircrafts to Jetís policy at Jetís rates. The management expects JetLite to turn profitable by around 4QFY08.

    What to expect?
    At the current market price of Rs 817, the stock trades at 3.1 times its FY07 book value. Going forward, we expect yields in the domestic market to increase on the back of price rationalsiation and a slowdown in the capacity addition rate. This is likely to have a significant impact on the companyís profitability. As far as international operations are concerned, we expect improvement in load factors on some of the newly launched routes. The company is also intensifying relationships with more international airlines to provide increased connectivity to its customers. The management expects the share of international revenues to go up to 50% from the current 25% in the next one year. Jetís has 13 aircrafts on order, which will be utilised to strengthen its feeder routes. A sharp rise in fuel prices and the delay in the companyís fund raising plans are the key concerns.

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