Jet Airways' Q1FY19 results (Underperformer) - Steep losses continue; capital infusion on the cards

Q1FY19 result highlights

• Jet Airways (Jet) reported consolidated net loss of Rs13bn in Q1FY19 led by lower yields, higher fuel costs, higher maintenance costs and adverse impact of INR depreciation.
• RASK declined 3.9%yoy to Rs4.1 and was below our estimate of Rs4.4. Fuel costs grew 37%yoy to Rs1.6, leading to a 19.4%yoy drop in gross spread to Rs2.5 (est: Rs2.8). Maintenance costs grew 20.6%yoy to Rs7.6bn due to an annual cost escalation and INR depreciation.
• Revenue grew 5.2%yoy to Rs62.6bn (est: Rs67.1bn), EBITDAR loss of Rs3.5bn with EBITDA loss being Rs10.2bn. Interest costs grew 28.1%yoy to Rs2.5bn due to INR depreciation and adverse debt mix (increase in share of INR debt to 35% from 27% in Q1FY18). Gross debt increased Rs2bn qoq at Rs86.2bn and net debt decreased Rs7.9bn qoq to Rs73.6bn. Reduction in net debt was possible due to proceeds from lease incentives made available from sale and lease back of the new 737 Max aircrafts (part of the total USD300m funds raised during Q1FY19, including fresh domestic borrowings). Jet Airways’ scheduled debt repayment for FY19 stands at ~Rs22bn.
• CASK-fuel (reported basis) grew 7.3%yoy to Rs3.4 and on adjusted basis (ex - fx MTM loss of Rs3.4bn) declined 1.5%yoy to Rs3.2.
• Pax traffic grew 3.9%yoy to 7.4m, ASKM grew 9.4%yoy to 15.3bn, RPKM grew 7.6%yoy to 12.3bn and PLF declined 130bp yoy to 80.4%. Average fare/pax grew 1.1%yoy to Rs7,312. Gross fleet size as on Jun-18 was at 120 aircrafts and remained unchanged qoq.
• Auditors have approved the results without any major audit observations. The Board has approved raising funds through a potential stake sale in Jet Privilege and a fresh capital raise in the company.

Key positives: Continued efforts at reducing non-fuel costs.

Key negatives: Lower yields and continued surge in fuel costs.

Impact on financials: Estimate net loss of Rs21.4bn in FY19 from net loss of Rs6.4bn earlier, mainly due to lower yields and higher fuel costs.

Valuations & view

The recent surge in crude prices along with lower yields has had a huge dent on Jet Airways’ profitability. While Jet Airways remains committed to achieving its target of 12-15% reduction in non-fuel CASK over next 6-8 quarters, near term earnings and cash flows are likely to be under severe stress due to higher fuel prices. This is also likely to disrupt Jet Airways’ target of reducing debt in FY19 and in fact is likely to push up its debt levels in the near term. We value Jet Airways at 7.4x FY20E EBITDAR at Rs280 and maintain our Underperformer rating on the stock.