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Report on Jet Airways

Submitted to Prof Laxmi Submitted by Shahbaz Singh

Jet Airways Crisis

Jet Airways (India) Ltd. plans to give 500 million ($9.6 million) of interestfree loans to JetLite by the end of March as part of immediate steps to keep the loss-making unit continue its operations. "These funds will be enough for JetLite," said M. Shivkumar, senior vice president in charge of finance at Jet Airways. "The environment is improving now and we expect higher yields in the coming months to generate the additional requirement of cash," he said, referring to December and January, when extended holidays lead to a rise in travel. The decision to provide financial support to JetLite follows remarks from Jet's auditors that the carrier needs to raise money to fulfill its obligations and also fund JetLite, whose net worth has eroded. Raising funds is vital if the airline's accounts in the future are to be prepared on a "going concern" basis, which refers to a company's ability to generate enough funds to stay operational. Jet Airways, India's biggest airline by market share, had infused 16.45 billion rupees as equity and an additional 14.14 billion rupees as loans to JetLite until the end of September. Jet's financial troubles reflect wider issues in India's aviation industry where all airlines except one--low-fare carrier Indigo--are incurring losses. Airlines have been hit by high fuel prices, mounting interest costs, a falling rupee as well as fierce competition that isn't allowing them to fully pass on the higher costs to customers. Rashes Shah, an analyst with ICICI Securities Ltd., said Jet can, for the time being, withstand challenges in the industry but "will be in trouble if the negative environment sustains for more than a year." Jet Airways's Shivkumar said also that a planned institutional share placement, through which Jet aimed to raise $400 million, won't happen anytime soon. But he added that Jet plans to sell and leaseback more planes in the next six months to generate cash.

The airline has a fleet of 100 planes, of which it owns 40, with the remainder on lease. It can fetch up to $300 million as profit from the sale and leaseback of the 40 planes. Jet has to repay 15 billion rupees of debt by the end of March. Of this, 6 billion rupees is short-term debt, part of which Jet may refinance. JetLite was formed in 2007 after Jet acquired Sahara Airlines Ltd. and turned it into a budget carrier. The unit incurred a loss of 1.07 billion rupees in the financial year ended March 31, 2011. Jet Airways, whose shares have lost two-thirds of their value in 2011, posted a net loss of 7.14 billion rupees in the July-September quarter, compared with a year-earlier net profit of 124 million rupees.

SWOT Analysis of Jet Airways

SWOT analysis Strength 1. Has created a good image among the Indian fliers 2. Trusted Airline by the Corporates Weakness 1. Competition from the LCCs Opportunity 1. Strongly positioned in the International routes 2. Has presence in every segment Threats 1. LCCs eatiing up the marketshare 2. Rising Fuel Costs 3. Rising Labour Costs

Comparative Analysis of Jet Airways Raios

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07

Investment Valuation Ratios Face Value 10.00 10.00 10.00 10.00 10.00

Dividend Per Share

--

--

--

--

6.00

Operating Profit Per Share (Rs)

289.91

244.11

69.32

87.32

119.89

Net Operating Profit Per Share (Rs)

1,480.59

1,209.09

1,340.28 1,020.58

817.50

Free Reserves Per Share (Rs)

80.48

79.35

133.52

198.05

227.36

Bonus in Equity Capital

10.89

10.89

10.89

10.89

10.89

Profitability Ratios Operating Profit Margin(%) 19.58 20.18 5.17 8.55 14.66

Profit Before Interest And Tax Margin(%)

12.29

10.81

-2.57

-0.26

8.68

Gross Profit Margin(%)

12.4

10.97

-2.60

-0.27

8.79

Liquidity And Solvency Ratios Current Ratio 0.64 0.34 0.37 0.61 1.07

Quick Ratio

0.77

0.86

1.09

0.77

1.18

Debt Equity Ratio

16.11

16.80

12.61

6.49

2.88

Long Term Debt Equity Ratio

14.22

11.98

9.33

5.63

2.75

Debt Coverage Ratios Interest Cover 1.72 1.31 -0.26 0.19 2.96

Total Debt to Owners Fund

16.11

16.80

12.61

6.49

2.88

Financial Charges Coverage Ratio

1.43

1.24

0.49

0 .82

1.24

Financial Charges Coverage Ratio Post Tax

1.49

1.27

1.34

1.50

1.49

Management Efficiency Ratios Inventory Turnover Ratio 2,778.81 4,349.40 7,370.1 2,143.82 5,601.41

Debtors Turnover Ratio

14.39

13.53

11.31

9.19

13.61

Investments Turnover Ratio

2,778.81

4,349.40

7,370.16

2,143.82

5,601.41

Fixed Assets Turnover Ratio

0.72

0.59

0.62

0.54

1.28

Total Assets Turnover Ratio

0.91

0.72

0.66

0.65

0.89

Asset Turnover Ratio

0.72

0.59

0.62

0.54

1.28

Recent Developments
Jet Airways (India) has signed an agreement with Thai Airways to lease out three of its Boeing aircraft. Going by industry sources, it stands to earn rent of over $3 million (about Rs 140 crore) per month from the deal. This is a positive development for the legacy carrier, which has four other Boeing aircraft on dry lease with Turkish Airlines. Improved demand/ supply scenario should lift yields (pricing) for Jet Airways and the industry at large, according to Sachin Gupta of HSBC Global Research. The carriers strategy to target the budget segment through Jet Konnect has worked. For the half-year ended September, Jet Konnect helped the company improve its market share by 200 basis points (or two percentage

points) to 19% and thereby improve its load factor. Further, fixed costs have come down and that is expected to reflect in the numbers in the days to come. Going forward, better than expected passenger traffic growth and earnings surprises could boost the stocks performance. On the flip side, higher than expected rise in jet fuel prices and capacity addition could affect it adversely. For the quarter ended December, Jet Airways posted a profit of Rs 106 crore, helped by seasonal growth and cost cutting. At the current market price, Jet Airways trades at 38 times its estimated earnings for 2011. Jet Airways stock has outperformed the broader markets in the last one year, gaining 174.2% to Rs 462.95 per share as against a 76.3% increase in the BSE Sensex. Our target FY12 EV/ Ebitdar multiple of 8.2 times (average of Chinese airlines and regional international airlines multiples) implies a target price of Rs 580 (was Rs 218), Gupta of HSBC wrote in a note to clients on March 22. EV stands for enterprise value, while Ebitdar refers to earnings before interest, tax, depreciation, amortisation and rent.