Date of Research – 19 January 2016
Price – Rs. 643.20
About the Company
Founded in 1993, Jet Airways (India) Limited (“Jet Airways” or the “Company“) provides passenger and cargo air transportation services. The Company operates in two business segments (i) Air Transportation and (ii) Leasing of Aircrafts. Jet operates flights to 50 destinations in India and 25 destinations internationally including Abu Dhabi, Bangkok, London, New York, Brussels, Colombo, Dhaka, Johannesburg and Toronto. In Financial Year 2013, the Company’s international operations accounted for 59.8 % of its total revenue. Jet currently operates a fleet of 115 aircrafts which includes 10 Boeing 777-300 ER aircrafts, 10 Airbus A330-200 aircrafts, 4 Airbus A330-300 aircrafts, 73 next generation Boeing 737-700/800/900 aircrafts, 10 ATR 72-500 and 1 ATR 72-600 turboprop aircrafts.
Jet-Etihad Deal
In Financial Year 2014, the Company sold a 24 % minority stake to Abu Dhabi’s Etihad Airways for US$379 million. A further investment of US$ 150 million is planned which will take Etihad Airways’ stake up to 50.1%. This alliance will bring significant guest benefits with expanded code sharing and by creating a combined network of 140 destinations.
Key Financial Figures
| Consolidated | (Rs. Cr) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 |
| Total Income from Operations | 18,840.56 | 19,035.84 | 20,965.60 | 22,206.96 | 22,692.58 |
| Expenses | 18,160.28 | 20,895.32 | 21,324.00 | 19,970.91 | 21,539.42 |
| Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit) | 680.28 | (1,859.48) | (358.40) | 2,236.05 | 1,153.16 |
| Depreciation | 929.35 | 877.78 | 765.31 | 996.24 | 887.66 |
| Finance Costs | 1,194.29 | 1,083.60 | 920.47 | 884.98 | 852.63 |
| Other income | 568.66 | 409.46 | 696.05 | 699.10 | 977.33 |
| Exceptional items | (96.12) | 717.39 | 753.22 | (148.02) | – |
| PBT | (778.58) | (4,128.79) | (2,101.35) | 1,201.95 | 390.20 |
| Tax | 0.70 | (0.12) | 0.01 | 0.01 | (0.20) |
| PAT (before Minority Interest and share of Associates) | (779.28) | (4,128.67) | (2,101.36) | 1,201.94 | 390.40 |
| Profit/ (loss) attributable to Minority Interest | – | – | – | – | – |
| Share of profit / (loss) of Associates | – | 1.09 | (3.95) | (9.71) | (48.05) |
| Consolidated Profit / (Loss) for the year | (779.28) | (4,129.76) | (2,097.41) | 1,211.65 | 438.45 |
Profitability Analysis
| Consolidated | (%) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 |
| Operating Profit Margin Ratio | 3.61 | (9.77) | (1.71) | 10.07 | 5.08 |
| Net Profit Margin Ratio | (4.14) | (21.69) | (10.02) | 5.41 | 1.72 |
Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.
Key Balance Sheet Figures
| Sources of Funds / Liabilities | (Rs. Cr) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 |
| Share Capital | 86.33 | 86.33 | 113.60 | 113.60 | 113.60 |
| Reserves & Surplus | 44.59 | (1,914.04) | (4,288.46) | (6,438.41) | (5,324.04) |
| Net worth (shareholders funds) | 130.92 | (1,827.71) | (4,174.86) | (6,324.81) | (5,210.44) |
| Long term borrowings | 8,773.58 | 6,868.60 | 6,546.07 | 6,607.30 | 6,210.33 |
| Current liabilities | 11,241.14 | 12,797.92 | 14,123.90 | 15,392.75 | 15,019.22 |
| Other long term liabilities and provisions | 544.47 | 515.95 | 614.96 | 1,421.96 | 1,278.75 |
| Deferred Tax Liabilities | – | – | – | – | – |
| Total Liabilities | 20,690.11 | 18,354.76 | 23,590.68 | 17,097.20 | 17,297.86 |
| Application of Funds / Assets | (Rs. Cr) | ||||
|---|---|---|---|---|---|
| Particulars | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 |
| Fixed Assets | 13,800.93 | 10,789.25 | 9,644.64 | 9,253.77 | 8,810.73 |
| Noncurrent Investments | 2.06 | 2.09 | 665.74 | 669.65 | 679.39 |
| Current assets | 3,856.47 | 4,627.29 | 4,401.66 | 5,765.52 | 6,383.44 |
| Long term advances and other noncurrent assets | 1,158.26 | 1,063.74 | 1,225.64 | 1,408.26 | 1,424.30 |
| Goodwill on consolidation (net) | 1,872.39 | 1,872.39 | 1,172.39 | – | – |
| Total assets | 20,690.11 | 18,354.76 | 17,110.07 | 17,097.20 | 17,297.86 |
Efficiency Analysis
| Particulars | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 |
| ROCE | (0.30) | 13.50 | (78.42) | (126.87) | 223.63 |
| ROE / RONW | (1,084.73) | – | – | – | (23.07) |
Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.
Valuation Analysis
| Consolidated | |||||
|---|---|---|---|---|---|
| Particulars | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 |
| Total Income from Operations (Rs. Cr.) | 18,840.56 | 19,035.84 | 20,965.60 | 22,206.96 | 22,692.58 |
| Growth (%) | 12.80 % | 1.04 % | 10.14 % | 5.92 % | 2.19 % |
| PAT (Rs. Cr.) | (779.28) | (4,128.67) | (2,101.36) | 1,201.94 | 390.40 |
| Growth (%) | – | – | – | 157.31 % | (67.52 %) |
| Earnings Per Share – Basic (Rs. ) | (90.26) | (429.32) | (184.64) | 106.66 | 38.60 |
| Earning Per Share – Diluted (Rs. ) | (90.26) | (429.32) | (184.64) | 106.66 | 38.60 |
| Price to Earnings | – | – | – | 5.13 | 13.68 |
Dividend History
The Company has maintained an average dividend yield of 0.00 % over the last 5 financial years.
Liquidity and Credit Analysis
Current Ratio
Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Jet Airway’s average current ratio over the last 5 financial years has been 0.36 times which indicates that the Company has not been maintaining sufficient cash to meet its short term obligations.
Long Term Debt to Equity Ratio
Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.
Jet Airway’s average long term debt to equity ratio over the last 5 financial years has been 13.26 times which indicates that the Company operates with very high level of debt and is vulnerable to withstand any economic slowdowns.
Interest Coverage ratio
Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.
Jet Airway’s average interest coverage ratio over the last 5 financial years has been (0.02) times which indicates that the Company has not been generating enough for the shareholders after servicing its debt obligations.
Ownership pattern
In its latest stock exchange filing dated 31 March 2017, Jet Airways reported a promoter holding of 51.00 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.
At the same time, institutional holding in the Company stood at 14.09 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.
About the Author
Rajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.