Jet Airways' Q4FY18 results (Underperformer) - Lower yields and high fuel costs lead to steep losses

Q4FY18 result highlights

• Jet Airways (Jet) reported consolidated net loss of Rs10.2bn in Q4FY18 led by lower yields, higher fuel costs, higher maintenance costs and fx MTM loss of Rs1.6bn. For FY18, Jet reported net loss of Rs6.4bn.   
• RASK declined 1.2%yoy to Rs4.1 (down 3.6%qoq) and was below our estimate of Rs4.3. Fuel costs grew 17%yoy to Rs1.5, leading to a 9.6%yoy drop in gross spread to Rs2.7.
• Maintenance costs grew 48.2%yoy to Rs7.9bn due to Rs2.5bn costs associated with engine shop visits of a part of the wide-bodied fleet of 9 aircrafts which is not covered by PBTH agreements. While these costs bunched up in Q4FY18, these are also likely to recur in FY19.
• Revenue grew 8.2%yoy to Rs62bn (est: Rs65.4bn), EBITDAR loss was Rs603m with EBITDA loss being Rs6.8bn. Interest costs grew 22.9%yoy to Rs2.4bn due to adverse mix (increase in share of INR debt to 36% from 27%/29% in Q4FY17/Q3FY18). Gross debt remained flat qoq at Rs84.2bn and net debt increased Rs2.3bn qoq to Rs81.5bn.
• CASK-fuel (reported basis) grew 33.1%yoy to Rs3.4 and on adjusted basis (ex-fx MTM & one-time maintenance) declined 1.1%yoy to Rs3.2.
• Pax traffic grew 11.8%yoy to 7.9m, ASKM grew 10.1%yoy to 15bn, RPKM grew 15.2%yoy to 13.1bn and PLF grew 380bp yoy to 86.8%. Average fare/pax declined 1.1%yoy to Rs6850. Gross fleet size as on Mar-18 was 120 and increased by 8 aircrafts during FY18.
• The Ministry of Civil Aviation has disapproved the merger of Jet Lite (India) with Jet Airways. 

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 Rs6.4bn in FY19 from PAT of Rs3.6bn earlier. Introduced FY20E earnings.

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 12-24 months, 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 by ~Rs15bn pa and in fact is likely to push up its debt levels in the near term. We value Jet Airways at 7.5x FY20E EBITDAR at Rs434 and maintain our Underperformer rating on the stock.