Jet Airways reported a loss of Rs 1,800 crore in Q4FY15, an improvement of 26% y-o-y. The result was impacted by multiple one-offs, mainly impairment of goodwill related to a subsidiary and some one-off costs. Excluding these, we estimate adjusted loss of Rs 170 crore, although an 80% improvement y-o-y, was a disappointing performance. The main factor that led to a loss despite material fuel related savings and an impressive 9ppts improvement in load factor was the rise in non-fuel costs offsetting a material part of the fuel cost savings.
Jet Airways’ persistent lack of non-fuel cost control will slow the pace of earnings recovery even in a low-fuel price environment. Further, recent depreciation of the rupee is likely to add to the cost headwinds. We lower our net profit estimates for FY16-17 by 16-30% as we incorporate higher cost expectation and a 2% depreciation to the rupee versus our previous expectation.
We continue to value Jet Airways at 8.5x EV/Ebitda multiple on FY16e, set at a premium to the 8x multiple we use to value our Asean low-cost carriers. Our lower forecasts imply a fair value target price of Rs 450. Although our new target price implies 17% upside, we downgrade our rating to ‘hold’ because we think costs and currency headwinds will cap near-term earnings and share price performance.