WOW - Merrill Lynch - Jet Airways

Broking House - Merrill Lynch Recommendation - Buy

Strong global performance and stability in Domestic operations... In its report dated 5th April, 2007, Merrill Lynch (ML) upgrades on Jet Airways (Jet) at its current price of Rs. 633 with a target price of Rs. 785. After underperforming badly, Merill Lynch (ML) expects improving financials to reverse the trend. ML expects a better operational performance, driven by (1) improvement in international operations, (2) slowing fleet additions aiding domestic environment, and (3) peak hour flight restrictions stabilizing domestic yields. ML expects Jet Airways (Jet''s) losses to fall in FY08 (compared to earlier estimates of expansion) and turn to profit in FY09, given growing global franchise and steadying domestic market. ML expect strong YoY comparisons in Q4 FY07 (profit of Rs 69.9 cr vs Rs56.8 cr), and Q1FY08 (loss of Rs9.6 cr vs Rs45 cr). ML states that Jet''s key international routes i.e. London and Singapore, have turned profitable much faster than expectations, despite severe competition. ML also adds that Jet plans to expand aggressively to other lucrative destinations in FY08 (especially US, Canada and the Middle East), which should likewise turn profitable by FY09. Contrary to ML''s earlier expectations of supply rising faster than demand until FY08, ML expects capacity growth to slow to 28% compared to similar domestic passenger traffic growth expectations. Additionally, restrictions on incremental peak hour slots will directly benefit Jet, and reduce the risk to declining yields, Points ML. Finally, ML makes us aware that at 11.6x FY08E, and 6.5x FY09E Cash EPS, the stock trades at a discount to regional growth airlines, despite expectations of Jet''s stronger growth rates. ML points out that its PO of Rs785 is based on 8x FY09 P/CEPS, in line with peers. ML raises its estimates, and upgrades its Rating on the stock to Buy.