Other income lifts Jet Airways’s Q1 earnings
Of the three listed Indian aviation companies, Jet Airways (India) Ltd’s June quarter results, announced on Tuesday after market hours, are the least impressive.
The uncomfortable fact is that “other income” growth of 51% over the same period last year lent considerable support to its reported stand-alone net profit, which more than doubled to Rs54 crore. It’s worth noting that the company’s March quarter net profit too got a boost from other income.
What’s more, Jet’s June quarter operating numbers don’t impress either. Ebitdar, a key measure of profitability for airlines, declined almost 15% year-on-year to Rs715 crore. The measure is lower than analysts’ expectations. For instance, Edelweiss Securities Ltd and ICICI Securities Ltd were expecting an Ebitdar of Rs951 crore and Rs851crore, respectively. Ebitdar is short for earnings before interest, tax, depreciation, amortization and lease rentals.
The financial results of InterGlobe Aviation Ltd, which runs IndiGo, had surpassed estimates while SpiceJet Ltd’s June quarter numbers were broadly in line.
Jet’s chief problems during the quarter were higher operating costs, especially fuel costs, which as a percentage of revenue rose almost 450 basis points over last year’s quarter. Aircraft maintenance costs too increased at a much faster pace. A basis point is 0.01%.
In a conference call on Wednesday, Jet said that the weakness in the Gulf market continues both on the demand and yields fronts. The international segment has been a weak spot for the airline for a couple of quarters now. Similar to the March quarter, in the June quarter too, the international segment’s profit (12% down year-on-year) hasn’t fared well compared to the domestic segment’s profit (15% up year-on-year).
So far this fiscal year, the Jet stock has gained 9%, slightly lower than the 11% increase in the S&P BSE 500 index. However, from its closing low on 30 May, the stock is up by a fourth. But the outlook is likely to be muted. Analysts don’t expect the airline’s international segment performance to improve in a hurry. A weaker outlook on crude oil prices could well weigh on the Gulf region for some more time. Also, Jet’s high debt and the resultant high interest costs are somewhat of a problem. Consider this—Ebitda for the June quarter was Rs145 crore while finance costs were Rs195 crore, though 5% lower year-on-year. A decline in debt and increase in yields would help improve sentiment for the stock.