Skids on fuel cost spike. Debt reduction positive Jet Airways’ (JAL) Q4FY17 consolidated revenue – at Rs57.3 billion – grew 3.5% y-o-y as the 8% RPKM spurt was compensated by 4% correction in passenger yield. Despite improvement in non-fuel costs, spurt in fuel cost led to EBITDAR margin plummeting ~1400bps to 13%. As a result, PAT plunged 95% y-o-y to Rs23 million. While FY17 revenue grew a paltry 2%, EBITDA declined 22% primarily due to fall in yield and higher fuel costs. Also, the company managed to reduce its net debt by Rs4.7 billion in Q4FY17. Going ahead, improvement in profitability hinges on yield stabilisation and sustained drop in non-fuel costs & debt. We factor in lower growth and impact on yield versus peers. We value JAL at 7.0x FY19E EV/EBITDAR yielding revised target price of Rs615. Maintain ‘buy’. Lower growth than peers. International operations drive growth. JAL’s Q4FY17 revenue grew 3.5% y-o-y to Rs57.3 billion. RPKM growth at 7.6% was the lowest amongst major airlines – Indigo 26%, SpiceJet 18%. Yield, at Rs4.3, was down 4% y-o-y in line with Indigo and Spice Jet. Overall capacity (ASKM) increased 8% y-o-y driven by 12% y-o-y growth in international ASKM’s, higher than domestic ASKM growth of 2%. As a result, load factor fell 30bps to 83 %.
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Yield falls marginally, but higher fuel cost plays spoilsport. The company’s focus on reducing costs continued in Q4FY17 as well, with CASK falling 5% y-o-y to Rs3.15. Akin to peers, JAL’s fuel expenses spiked – up to 29.7% of revenue versus 19.4% in Q4FY16. Employee costs too jumped 17% y-o-y. As a result, EBITDA margin at 12.8% fell from 26.8% in Q4FY16.The company yet again did not report any exceptional items. Owing to the sharp jump in fuel expenses, PAT plummeted 95% y-o-y to Rs23 million. On the positive front, net debt stood lower by Rs4.7 billion – total net debt reduction for FY17 was Rs19.0 billion. Outlook and valuations: challenging, maintain ‘buy’. Stabilisation of industry yields in near term, secular trend in costs, and debt reduction are key for profitability to get a leg up. We factor in JAL to post lower growth and its yield to be impacted international operation versus other players. We value the stock at 7.0x FY19E EV/EBITDAR.