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What Jet’s operations give, its financial costs takes away

What Jet’s operations give, its financial costs takes away

Jet Airways (India) Ltd showed again why it is one of India’s better performing listed aviation companies. It delivered a strong operating performance in the June quarter, with stand-alone operating profit (excluding JetLite) increasing 112.6% to 740 crore in the June quarter.

Jet was the only firm that reported an operating profit (even after deducting lease rentals) in the last fiscal in a difficult environment.

This came on the back of a strong revenue growth of 30%, higher than the 25% and the 13% revenue growth seen in the March and the December quarters, respectively. But, thanks to the company’s high interest costs and aircraft lease rentals, net profit stood at a meagre 24.7 crore.

According to Jet, better yields, along with an increase in demand and stringent cost control measures, helped it post a net profit this time around. Of course, one can argue that the net profit got a boost from other income of 124 crore, up 200% on a year-on-year basis. About two-fifth of other income includes profit on sale and leaseback of aircraft. Nevertheless, the company’s performance was much better than Street estimates and operational measures are good. Shares of both SpiceJet Ltd (up 35%) and Jet (up 15%) have performed well since the beginning of this fiscal, reflecting the favourable demand dynamics.

While the company has done well operationally, high debt remains a concern. Long-term borrowings, or non-current liabilities, stood at 9,955 crore, and shareholders’ funds were just 1,265 crore. Its market capitalization, too, is far lower at 3,229 crore.

The high debt on the books naturally means that finance costs will put pressure on net profit. For instance, in the June quarter, finance costs as a percentage of operating profit was as high as 54%. That apart, the higher depreciation costs, too, have been weighing on the numbers for a while and the June quarter was no exception.

In the short run, higher crude oil prices, a slowing economy and seasonality factors (the September quarter is not really the best for aviation) are likely to keep sentiments muted. All this may mean that the strong operating performance in the June quarter may not be repeated.

Also See | Key numbers (PDF)

PDF by Ahmed Raza Khan/Mint

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