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Money Aug 7, 2012

CLSA sees turnaround in Jet too on route rationalisation

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Brokerage CLSA has joined the bandwagon and upgraded Jet Airways India to "buy" from "sell", and raised its target price to Rs 500 from Rs 290, citing the airline's "strong" passenger yield environment, focus on route rationalisation on its international routes and "tight" cost control.

"Given the improved performance in international and cost discipline in domestic (routes), we now expect improved profitability over FY13-14, driving significant upgrades. Continuing strength in operating performance and debt reduction leaves room for upside," CLSA writes in a note dated on Tuesday.

Jet Airways posted a surprise quarterly profit on Friday, raising hope the worst is over for Indian carriers.

Bank of America-Merrill Lynch (BofA-ML) said yesterday that the surprise results shows the industry is on a revival and will return to profitability next fiscal. The American investment bank also upgraded the stocks of SpiceJet and Jet Airways to "buy" from "underperform", saying improving industry trends such as signs of ticket price hikes and reduced capacity will improve profitability.

"These carriers will substantially lower their losses in FY13 and return to profit in FY14," Bank of America-Merrill Lynch said in a report.

"We upgrade both Jet and Spicejet to buy (from underperform). Our upgrade is led by the improved pricing power led by slower than anticipated increase in supply, a sharp jump in Ebitdar due to industry yields rising by around 15 percent this year, and rationalisation of routes. This should see these carriers substantially lower their losses in FY13 and return to profit in FY14," BofA report said.

The domestic aviation industry is struggling with nearly Rs one lakh crore in debts, led by state-run Air India that is sitting on a debt pile of over Rs 67,000 crore, followed bythe market leader Jet Airways Group, which has a debt of Rs 14,500 crore, while the crippled Kingfisher Airlines had nearly 15,000 crore in debt and accumulated losses.

The investment bank has also increased its price target on full service carrier Jet Airways to Rs 480 from Rs 210, and to Rs 42 for low cost airline Spicejet from Rs 21--nearly a 30 percent upside potential for both the counters.

Jet shares last up 1.7 percent.

Agencies

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