Stock Review: Jet Airways

Jet Airways quadrupled its net profit sequentially to `12.4 crore in the September quarter. The quarter, which is seasonally more subdued, saw revenues rise 40 per cent year-on-year (yo-y) to over `2,800 crore, even as the passenger load factor contracted 230 basis points (bps) quarter-on-quarter (qo-q) to 77.4 per cent. A 13 per cent y-o-y increase in departures, and a nine per cent rise in gross revenue per passenger to `7,214, were the balancing factors.

Although Jet Airways, along with Jetlite, expanded market share in the domestic space by 140 bps y-o-y to 27 per cent, revenues dipped 4.6 per cent sequentially to `1,238 crore due to it being a lean season. However, the load factor, despite being compressed 800 bps sequentially, surged 160 bps yo-y to 71.4 per cent. The average gross per passenger revenue increased 10 per cent y-o-y to `4,495. Domestic operations Ebitda (earnings before interest, taxes, depreciation and amortisation) margins declined sequentially by 170 bps to 16.2 per cent.

Jet said it converted `1,200 crore rupee loans into dollar loans, reducing interest costs 66.4 crore a year. The interest and finance charges for the first half of financial year 2010-11 were `993 crore, more than double that in the same period last year.

The airline plans to start services in 10 new domestic sectors and introduce 46 new flights this month, besides low-cost services in eight additional sectors with 30 new flights. According to the management, given the coming holiday season, demand in the domestic sector and yields are expected to pick up. International yields and loads are also expected to stay strong.

The positive operational trends and outlook augur well for the stock, which has seen afew upgrades in earning estimates. At Monday's closing price of `802, the stock trades at a price-earnings valuation of 13 x FY11 earnings per share estimate.

A revival in the aviation market and revenues from international operations help the airline report a strong performance