Jet Airways Q1FY15 (April-June 2014) consolidated loss of R260 crore was an improvement over the R350 crore-loss in Q1FY14. However, stripping out non-recurring items, we estimate the groups adjusted loss of R300 crore (Jet Airways standalone loss of R260 crore and Jetlites R40 crore) was flat y-o-y, but lower than our forecast of R400 crore.
The operating environment remains difficult and the key message we picked up from the post-result conference call was that it will be a slow progress towards managements guidance for a return to profitability in 2017.
While, we believe, Jets focus on turning around the relatively better performing international segment is sensible, we argue the Master Brand Plan of streamlining its domestic brands of JetLite and JetKonnect into Jet Airways and having a consistent product may address the brand-perception issues for the group, but, simultaneously, worsen the financial performance with higher costs and a muted revenue potential.
Finally, the competitive landscape in the domestic full-service segment is set to deteriorate with the planned October 2014 launch of Vistara, the SIA-Tata joint venture. We continue to value Jet Airways at a 1.4x EV/sales multiple, based on its own past three-year average and maintain our R200 target price.
As this implies a negative 19% potential total return, we reiterate our underweight rating. The key upside risks are a strengthening of the rupee, a fall in fuel prices or a reduction of fuel taxes, and a strong pick-up in yields.