Jet Airways - Visit Note

India Midcaps
VISIT NOTE
JET AIRWAYS (INDIA)

In it for a long haul
India Equity Research| Aviation
We recently met management of Jet Airways (Jet) to discuss their long

term vision for the company. Jet is in here for the long haul and looking
for incessant improvement in its operating metrics to achieve sustainable
profitability. Management acknowledged the low margin nature of
business and is looking to scale up levering Etihads strengths to improve
top-line and reduce costs. Lower crude price is only a short term relief
and doent influences its long term vision. We raise our TP to INR590
(INR391 earlier) on lower crude oil price expectations and rolling over to
FY17 numbers. Maintain BUY.
EDELWEISS RATINGS
Absolute Rating
BUY
Investment Characteristics
Growth
MARKET DATA (R: JET.BO, B: JETIN IN)

CMP
: INR 447
Target Price
: INR 590
52-week range (INR)
: 475 / 203
Share in issue (mn)
: 113.6
M cap (INR bn/USD mn)
: 51 / 819
Avg. Daily Vol. BSE/NSE (000) : 2,126.8
Strategising for long term: Getting the basics right

Jet has embarked on fleet organisation, service standardisation and cost
rationalisation as part of its long-term business strategy. The company has stopped
offering varied services under the Jet Lite brand from December 1, 2014 and will offer
standard services to all its customers. It is also in the process of standardising its fleet
to similar configuration (12 business + 156 economy,) which will improve capacity and
reduce maintenance costs.
SHARE HOLDING PATTERN (%)

Current
Q2FY15
Q1FY15
51.0
5.8
51.0
4.7
51.0
4.8
Promoters *
MF's, FI's & BKs
FII's
3.3
3.2
4.3
Others
39.9
41.1
39.9
NIL
BSE Midcap
Stock
Index
Stock over
Index
* Promoters pledged shares

(% of share in issue)
Etihad to offer scale: Synergies to flow over time

Etihad, with its equity partner airlines (refer Table 1), offers opportunities including: 1)
all partner airlines will allow Earn and Burn of privilege points from partner airlines
which will strengthen customer loyalty; 2) better destination reach will facilitate
seamless transit of travelers even from remote locations; and 3) allows bargaining
power over suppliers as equity partners have overall size of 500 plus aircraft.
PRICE PERFORMANCE (%)
1 month
1.9
11.8
9.8
3 months
5.9
(5.0)
(10.9)
12 months
61.3
(31.2)
(92.6)
Outlook and valuations: Crude to aid in short term; maintain BUY

Jet reported net profit in Q2FY15, driven primarily by one-offs. We expect the
company to report positive net profit from Q3FY15 gaining from crude price fall as it
accounts for ~40% of revenues and is a major cost item. Post receiving equity
investment from Etihad, Jet is targeting to achieve in the next 3 years strategic
implementation of sustaining profitability, which is currently on track. Maintain BUY
with target price of INR590
Financials
Year to March
Net revenue
EBITDAR
Net profi t
Di luted EPS (INR)
Di luted P/E (x)
EV/EBITDAR (x)
ROACE (%)
FY14
190,358
954
(41,287)
(300.3)
(1.5)
153.2
-29.1
FY15E
207,581
29,325
1,835
(12.9)
(35.9)
5.2
11.7
FY16E
212,623
38,622
6,267
55.2
8.4
3.7
25.3
(INR mn)
FY17E
223,335
41,075
5,810
51.1
9.0
2.9
22.2
Edelweiss Research is also available on www.edelresearch.com,

Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.
Niraj Mansingka, CFA

+91 22 6623 3315
niraj.mansingka@edelweissfin.com
January 15, 2015
Edelweiss Securities Limited
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Aviation
Table 1: Etihads equity partners
Airline
Country
Etihad Stake
Aer Lingus
Ireland
4.11%
Etihad increased its stake from

2.98% to 4.11% in 2014
Comments
Air Berlin
Germany
29%
Etihad purchased a 29% stake

in airberlin on December 19,
2011
Air Serbia (formerly Jat

Airways)
Republic of Serbia
49%
Air Seychelles
Republic of Seychelles
40%
Etihad acquired a 40% stake in

Air Seychelles on January 25,
2012
Alitalia
Italy
49%
Etihad announced its purchase

of a 49% stake in Alitalia on
August 8, 2014
Jet Airways
India
24%
Etihad concluded the

subscription of a 24% stake in
Jet Airways on November 20,
2013
Virgin Australia
Australia
22%
Source: www.etihad.com
Table 2: Jet Airways Valuation

Standalone FY17e EBITDAR
Jet Lite EBITDAR
Consol EBITDAR
EV/EBITDAR (x)
EV
Aircraft lease rentals capitalised at 7x
FY17E Net debt
Equity value
Market Cap / CMP
% upside
INR mn
39,918
1,156
41,075
7.0
287,522
145,508
74,966
67,048
52,482
27.8
INR/share
351
10
362
2,531
1,281
660
590
462
27.8
Source: Edelweiss research

Jet Airways (India)
Key takeaways from meeting

Competition healthy for nascent Indian aviation market
Jet believes the Indian aviation market is still at nascent stage and competition is healthy for
industry to grow. The company, contrary to perception, is not in favour of SpiceJet going the
Kingfisher way as that would take a hit on consumer confidence and investor perception.
New airlines like Vistara and Air Asia will take some time before attaining sizeable scale and reach
in domestic market. Indigo, which has already achieved sizeable scale, will now find it difficult to
maintain profitability with its sale and lease-back model owing to increased fleet size.
Synergies with Etihad equity partnership
Common Privilege points program: Etihad and its equity partners including airberlin, Jet
Airways, Virgin Australia and Alitalia offer the common Earn and Burn facility, which
allows transfer of points across partner airlines including domestic travel.
Improving Destination reach: Travelers of Jet can now use inter-linked partner airline
network for international travel. As a result, customers transit not only becomes hassle
free but also convenient as travelers are now offered options for destinations and choice
of flights for travel. Besides, the network reach is higher than other competitor airlines.
Common sourcing of spares: Etihad and its equity partners now control almost a fleet size
of 500 aircraft. Such size could be used for favourable terms on bulk sourcing of spares.
Using Abu Dhabi as a hub: Brussels is Jet current hub for western countries, which
owing to geographical distance requires wide bodied aircraft. This partnership allows
Jet to now use Abu Dhabi as its hub which will allow easy use of narrow-bodied aircraft,
which offer better economic value.
Focus on basics to set house in order

Jet continues to focus on its basics efficient utilisation of planes, improving turnaround
time, offering better quality services, standard level of service, etc., to achieve sustainable
profitability over next three years having received investments from Etihad. The company
will also leverage its leadership position in full cost airline category in India to further
strengthen its hold and offer better value proposition to its customers.
Spotlight on international routes; rationalisation of domestic routes

almost done
The target is become a major player for outbound travel from India drawing from extended
network and global reach. Abu Dhabi as its hub and fleet of 737 aircraft being the backbone
will allow the company to achieve growth while rationalising costs. Jet, in line with its
strategy, has reduced its exposure to domestic market to ~50 destinations from earlier ~55.
Also, the company doesnt foresee further reduction in its domestic routes, while it
continues to enhance its international travel.
Crude price fall: Only a tactical advantage

Jet maintains while profitability will improve due to fall in crude prices, impact of same will
be: 1) limited to short term as crude prices will stabilise in some time; and 2) entire industry
will derive benefits of lower crude prices. However, company is not looking at aggressively
slashing prices from current levels to pass on the benefits as air travel in India is already
quoting low prices versus western counterparts.

Aviation
Company Description
Jet Airways (JAL) is one of Indias largest private sector airlines with market share of ~24% in
domestic market. JAL was incorporated as an air taxi operator in April 1992. It began its
commercial airline operations in May 1993 and international operations in March 2004. It
acquired Sahara Airlines (rebranded as Jet Lite, JLL) in April 2007. JAL in May 2009
introduced Jet Airways Konnect (JAK), an all economy service to serve routes where the
traffic is predominately price sensitive and demand for high service oriented product is
limited.
JAL received an investment of INR 20,580mn from Etihad Airways in 2014 for 24% equity
stake. Etihad Airways invested an additional amount of INR 8,590mn for 50.1% equity
investment in JetPrivilege, JALs Frequent Flyer Program. Partnership with Etihad will enable
JAL to have combined network of more than 130 routes and would bring additional feeder
traffic to Jet.
JAL as of FY 14 has a fleet of 101 aircrafts of which 8 aircrafts are subleased to Turkish
Airlines (3) and Etihad Airways (5). As of FY14 JAL flew to 56 domestic destinations (includes
flights operated by JLL) and 20 international destinations. In FY14, international operations
contributed ~53% to the total revenues and more than 51% to the operating profit of the
company at consolidated level.
Investment Theme
Low oil prices: Low crude oil prices would improve margins due to low Aviation Turbine Fuel
(ATF) prices. Fuel expenses accounted for ~43% of total expenses in FY14.
Demand- supply mismatch: Demand growth is expected to outpace the supply growth
leading to better yields. Domestic traffic in India is expected to increase at CAGR of 11%,
while international passenger traffic is expected to increase at CAGR of 7.5% over the next
decade. The growth of supply is expected to be lower as currently there is oversupply in
market.
Aircrafts on operating lease: JAL sells some of its own aircrafts and takes back those aircrafts
on and operating lease basis after 5-7 years of their operations. This not only releases equity
from sale of aircraft but also adds to bottom-line as depreciation over the period of
operations is higher than drop in realizable value of aircraft.
Key Risks
Strong capacity addition: Capacity addition by other airlines especially low cost carrier
could pose a risk for increase in market share. Currently there is over capacity in the market
however growth in capacity addition is expected to lag demand growth.
Passenger traffic growth: Growth in passenger traffic is expected to be high single digit/low
double digit for international/ domestic traffic over next decade. Any slowdown in growth of
traffic will impact profitability.
Leverage: JAL has negative reserves of INR 42,885mn as of FY14. Though JALs leverage has
improved post investment from Etihad and borrowings have decreased in FY14, its forward
sales have increased 33% leading to increase in current liabilities.

Jet Airways (India)
Financial Statements
Key Assumptions
Income statement
Year to March
FY14 FY15E FY16E FY17E
Macro
GDP(Y-o-Y %)
Inflation (Avg)
4.7
9.5
5.4
6.8
6.3
5.5
7.3
5.5
Repo rate (exit rate)
8.0
7.8
6.8
6.3
60.5
61.0
62.0
62.0
USD/INR (Avg)
Company
Year to March
FY15E
FY16E
FY17E
190,358
81,253
207,581
68,766
212,623
58,028
223,335
60,941
Employees Remuneration and
20,778
23,391
26,740
30,583
Selling and Distribution Expenses
15,304
20,674
21,960
23,140
Operating expenses
72,069
65,426
67,273
67,596
189,404
178,256
174,001
182,260
Net revenue
Aircraft fuel expenses
Total operating expenses
Domestic
EBITDA
ASKMs (mn)
13,305 13,571 13,843 14,120
RPKMs (mn)
9,395
PLF (%)
9,726 10,698 11,340
(INR mn)
FY14
Aircraft Lease Rentals

Depreciation and amortisation
954
29,325
38,622
41,075
19,549
19,145
18,920
20,787
8,778
7,852
8,259
8,601
(27,373)
2,329
11,443
11,687
71
72
77
80
Fuel rate (INR/lt)
71.5
58.8
46.5
49.3
Other income
4,095
4,965
3,971
1,975
SG&A expenses as % of revenues
10.8
10.5
10.5
10.5
Interest expenses
10,836
8,757
9,148
7,852
1.9
2.0
2.1
2.3
Exceptionals
(7,174)
3,299
(41,288)
1,835
6,267
5,810
Other operating expenses (INR/ASKM)

International
EBIT
Profit before tax
ASKMs (mn)
24,758 26,739 28,878 31,189
Provision for tax
RPKMs (mn)
20,352 22,793 26,440 30,405
Profit After Tax
PLF (%)
82.2
85.2
91.6
97.5
Extraordinaries
Fuel rate (INR/lt)
52.3
42.9
33.9
36.0
Adjusted PAT
SG&A expenses as % of revenues
6.6
6.8
6.8
6.8
Shares outstanding (mn)
Other operating expenses (INR/ASKM)
1.3
1.5
1.6
1.8
Financial assumptions
Employee expense (%yoy inc)
(1)
(41,287)
1,835
6,267
5,810
(7,174)
3,299
(34,113)
(1,464)
6,267
5,810
114
114
114
114
Diluted EPS (INR)
(300.3)
(12.9)
55.2
51.1
CEPS (INR)
(223.0)
56.2
127.9
126.9
Year to March
FY14
FY15E
FY16E
FY17E
Aircraft fuel expenses

Non-fuel expenses
43
56.8
33
52.7
27
54.5
27
54.3
23.0
15.0
12.0
6.8
6.9
6.9
6.9
14.8
14.0
14.0
14.0
Debtor days
26
26
26
26
Inventory days
17
18
18
18
Payable days
103
103
103
103
EBITDAR margins
0.5
14.1
18.2
18.4
Interest Cost (% of Debt)
8.5
8.5
8.5
8.5
EBIT margins
(14.4)
1.1
5.4
5.2
Depreciation as % of gross block
5.5
4.9
5.1
5.2
Net profit margins
(17.9)
(0.7)
2.9
2.6
FY14
FY15E
FY16E
FY17E
1.0
(96)
9.0
2,973
2.4
32
5.0
6
Net profit
241.5
(7.3)
EPS
(7.3)
Other income as % of Cash + Investments

Forward tickets % revenues
12.0
Common size metrics
Growth ratios (%)

Year to March
Revenues
EBITDAR Growth

Aviation
Balance sheet
(INR mn)
As on 31st March
Cash flow metrics
FY14
FY15E
FY16E
FY17E
FY14
FY15E
FY16E
FY17E
Equity capital
Reserves & surplus
1,136
(42,885)
1,136
(41,049)
1,136
(34,783)
1,136
(28,973)
Year to March
Operating cash flow
Investing cash flow
(2,523)
277
(730)
2,965
18,584
1,671
22,427
(425)
Shareholders funds
(13,352)
(41,749)
(39,913)
(33,647)
(27,837)
Financing cash flow
1,460
(14,023)
(14,648)
Short term debt
40,305
35,500
30,000
24,500
Net cash flow
(785)
(11,787)
5,607
8,650
Long term debt
65,461
65,000
65,000
65,000
Capex
2,670
(2,000)
(2,300)
(2,400)
105,765
100,500
95,000
89,500
64,017
60,587
61,353
61,663
Profitability & efficiency ratios
108,170
6,657
102,319
6,657
96,360
6,657
90,159
6,657
Year to March
12,065
277
5,884
14,534
ROAE (%)
ROACE (%)
Borrowings
Sources of funds
Total net fixed assets
Non current investments
Cash and equivalents
Inventories
FY14
FY15E
FY16E
FY17E
113.7
(29.1)
3.6
11.7
(17.0)
25.3
(18.9)
22.2
8,594
10,237
10,486
11,014
Inventory day
31
39
49
18
Sundry debtors
12,872
14,391
14,831
15,642
Debtors days
25
24
25
25
Loans and advances
22,743
24,603
25,223
26,478
Payable days
192
212
233
82
Total current assets (ex cash)
44,208
49,231
50,540
53,134
Cash conversion cycle (days)
(136)
(149)
(159)
(39)
Trade payable
52,283
49,748
48,674
51,069
Net Debt/Equity
(2.1)
(2.3)
(2.5)
(2.5)
Others current liabilities
54,801
48,150
49,414
51,753
FY14
FY15E
FY16E
FY17E
2.4
1.6
3.3
2.0
3.5
2.1
3.6
2.4
(6.3)
(5.1)
(5.8)
(7.3)
Total current liabilities &
107,084
97,898
98,088
102,822
Operating ratios
Net current assets (ex cash)
(62,876)
(48,667)
(47,548)
(49,688)
Year to March
Uses of funds
64,017
60,587
61,353
61,663
Book value per share (INR)
(367.5)
(351.4)
(296.2)
(245.1)
Total asset turnover

Fixed asset turnover
Equity turnover
Free cash flow
(INR mn)
FY14
FY15E
FY16E
FY17E
Valuation parameters
(41,287)
19,549
1,835
19,145
6,267
18,920
5,810
20,787
Year to March
(3,762)
(7,501)
(5,485)
Gross cash flow
(25,499)
13,479
Less: Changes in WC
(22,977)
14,209
Operating cash flow
(2,523)
(730)
Less: Capex
(2,670)
2,000
2,300
2,400
147
(2,730)
16,284
20,027
Year to March
Net profit
Depreciation
Others
Free cash flow
FY14
FY15E
FY16E
FY17E
(6,309)
Diluted EPS (INR)

Y-o-Y growth (%)
(300.3)
-
(12.9)
-
55.2
-
51.1
(7.3)
19,702
20,288
CEPS (INR)
(223.0)
56.2
127.9
126.9
1,118
(2,140)
18,584
22,427
EV/Sales (x)
EV/EBITDA (x)
0.8
98.2
0.7
3.4
0.7
2.3
0.5
1.8

Jet Airways (India)
Additional Data
Directors Data
Naresh Goyal
I M Kadri
Gaurang Shetty
James Rigney
Chairman, Non-executive Promoter Director

Non-executive Independent Director
Whole-time Director and Manager
Director
Javed Akhtar
Aman Mehta
James Hogan

Director
Auditors - Deloitte Haskins & Sells, Chaturvedi & Shah

*as per last available data
Holding Top10
Perc. Holding
51
2.34
1.29
0.98
0.36
Goyal naresh k
Reliance capital tru
Birla sun life asset
Tata asset managemen
Prudential icici ass
Perc. Holding
24
2.07
0.99
0.66
0.33
Etihad airways pjsc

Life insurance corp
Bnp paribas asset ma
Sbi funds management
Van eck associates c
Bulk Deals
Data
Acquired / Seller
B/S
Qty Traded
Price
No Data Available
Insider Trades
Reporting Data
Acquired / Seller
B/S
Qty Traded
No Data Available

Aviation
Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai 400 098.
Board: (91-22) 4009 4400, Email: research@edelweissfin.com
Coverage group(s) of stocks by primary analyst(s): Aviation

Jet Airways (India) Ltd
Recent Research
Date
Company
Title
Price (INR)
Recos
12-Nov-14
Jet Airways
Significant improvement in
operating metrics;
Result Update
264
Buy
12-Aug-14
Jet Airways
Reduction in debt costs;

Result Update
247
Buy
02-Jun-14
Jet Airways
Passenger growth to drive

earnings;
Result Update
243
Buy
Distribution of Ratings / Market Cap

Rating Interpretation
Edelweiss Research Coverage Universe
Rating Distribution*
* 1 stocks under review
Buy
Hold
150
46
> 50bn
Total
10
207
Between 10bn and 50 bn
< 10bn
143
58
Rating
Expected to
Buy
appreciate more than 15% over a 12-month period
Hold
appreciate up to 15% over a 12-month period
Reduce
depreciate more than 5% over a 12-month period
One year price chart
500
430
(INR)
360
290
220
Jan-15
Dec-14
Nov-14
Oct-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
150
Jan-14
Market Cap (INR)
Reduce
Jet Airways

Jet Airways (India)

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India Midcaps

JET AIRWAYS (INDIA)

We recently met management of Jet Airways (Jet) to discuss their long

MARKET DATA (R: JET.BO, B: JETIN IN)

52-week range (INR)

Share in issue (mn)

M cap (INR bn/USD mn)

Avg. Daily Vol. BSE/NSE (000) : 2,126.8

Strategising for long term: Getting the basics right

SHARE HOLDING PATTERN (%)

* Promoters pledged shares

Etihad to offer scale: Synergies to flow over time

PRICE PERFORMANCE (%)

Outlook and valuations: Crude to aid in short term; maintain BUY

Edelweiss Research is also available on www.edelresearch.com,

Niraj Mansingka, CFA

January 15, 2015

Edelweiss Securities Limited

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Etihad increased its stake from

Etihad purchased a 29% stake

Air Serbia (formerly Jat

Etihad acquired a 40% stake in

Etihad announced its purchase

Etihad concluded the

Table 2: Jet Airways Valuation

Source: Edelweiss research

Edelweiss Securities Limited

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Jet Airways (India)

Key takeaways from meeting

Synergies with Etihad equity partnership

Focus on basics to set house in order

Spotlight on international routes; rationalisation of domestic routes

Crude price fall: Only a tactical advantage

Edelweiss Securities Limited

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Edelweiss Securities Limited

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Jet Airways (India)

FY14 FY15E FY16E FY17E

Repo rate (exit rate)

Employees Remuneration and

Selling and Distribution Expenses

Total operating expenses

13,305 13,571 13,843 14,120

9,726 10,698 11,340

Aircraft Lease Rentals

Fuel rate (INR/lt)

SG&A expenses as % of revenues

Other operating expenses (INR/ASKM)

Profit before tax

24,758 26,739 28,878 31,189

Provision for tax

20,352 22,793 26,440 30,405

Profit After Tax

Fuel rate (INR/lt)

SG&A expenses as % of revenues

Shares outstanding (mn)

Other operating expenses (INR/ASKM)

Diluted EPS (INR)

Aircraft fuel expenses

Interest Cost (% of Debt)

Depreciation as % of gross block