Predictive power of Jet Airways - Rupee Tax · Jet Airways has recently suspended operations after a turbulent year which saw long and unfruitful negotiations between the owners,

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April 19

RupeeTax

Predictive Series#2

Predictive power of Financial Statements Examining collapse in stock price of Airways

Jet Airways is in the news for wrong

reasons as it heads towards closure

of operations; a good time to

examine the predictive power of

financial results on stock

performance.

Predictive power of

collapse of Jet

for wrong

as it heads towards closure

of operations; a good time to

examine the predictive power of

results on stock

1

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In this note which is part of our predictive series, we examine the collapse in stock

price of Jet Airways from Jan 18 till

by the Company could have predict

manner i.e. before the value of their investments

Background

� Jet Airways has recently suspended operations after a turbulent year which saw

long and unfruitful negotiations between the owners, investors and lenders to

work out a plan to save the airline.

� The stock price of Jet Airways had reached an all time high of Rs. 870 just a yea

back in Jan18. The stock

subsequently reached a low of

Jan 19 to Rs. 250 levels (a loss of 70% from peak).

� Stock prices of other Indian airlines (Spice, Indigo)

Jan 18 and declined subsequent

moderate.

� Jet Airways declared financial results for Dec17 quarter on 14 Feb 18 and

for 31 Mar18 on 23 May 18.

of impending trouble (th

� Credit rating of Jet Airways was downgraded by ICRA

after the annual results

� Jet Airways reported a loss

revenue in Q4FY18 (Mar18)

loss of this magnitude only once in FY14.

consistently reported losses


price of Jet Airways from Jan 18 till April 19 and whether financial results

predicted the decline and helped investors act in a timely

before the value of their investments crash landed.

Jet Airways has recently suspended operations after a turbulent year which saw

and unfruitful negotiations between the owners, investors and lenders to

work out a plan to save the airline.

price of Jet Airways had reached an all time high of Rs. 870 just a yea

back in Jan18. The stock then declined to Rs. 400 by end of Ma

a low of Rs. 177 in Oct 18 followed by a mild recovery in

250 levels (a loss of 70% from peak).

Indian airlines (Spice, Indigo) also reached all

eclined subsequently though the decline was

financial results for Dec17 quarter on 14 Feb 18 and

Mar18 on 23 May 18. The results for Jun18 were delayed showing first sign

of impending trouble (though Jet has a history of delaying financial results).

Credit rating of Jet Airways was downgraded by ICRA to BB on 28 Mar

after the annual results for Mar 18 were published).

Jet Airways reported a loss (before interest) of 15.7% as percentage

(Mar18). In the earlier ten years, the Company had reported a

loss of this magnitude only once in FY14. After Q4 FY18, Company has

consistently reported losses every quarter.

2


and whether financial results published

and helped investors act in a timely

Jet Airways has recently suspended operations after a turbulent year which saw

and unfruitful negotiations between the owners, investors and lenders to

price of Jet Airways had reached an all time high of Rs. 870 just a year

Rs. 400 by end of May 18 and

177 in Oct 18 followed by a mild recovery in

reached all-time highs in

the decline was comparatively

financial results for Dec17 quarter on 14 Feb 18 and results

were delayed showing first sign

financial results).

on 28 Mar18 (5 days

percentage of operating

. In the earlier ten years, the Company had reported a

After Q4 FY18, Company has

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Financial results and movement in

� Stock price movement over last three years and timing of key news/events are

plotted below. Quarterly f

Annexure 1).

2018 Price 171.90 Vol 702916

� Stock price increased from

had posted good numbers and profitability every quarter from Jun15 to

Prices of other airlines had also

justification for rise in stock

� The biggest decline for Jet airways was between

Jan18 and May18 from

the decline in price in this period

between 1 May 18 (Rs. 643)

before Jet announced terrible results for Q4.

8 Dec17

financial results

9 May 18

Jet with Jet Lite not approved

17 Sep 17 – Moderate

results for Q1

movement in stock price

price movement over last three years and timing of key news/events are

Quarterly financial results (operating profit are presented in

increased from 350 levels in Jan 17 to 850 levels by Jan 18. Company

good numbers and profitability every quarter from Jun15 to

Prices of other airlines had also increased in this period. This provided a strong

stock prices.

The biggest decline for Jet airways was between

Jan18 and May18 from Rs. 769 to 400. Interestingly,

in this period was the highest

(Rs. 643) and 22 May 18 (Rs. 400)

terrible results for Q4.

28 May 18- ICRA rating

downgrade to BB – no

immediate impact on stock

price

`

23 May18 huge loss declared for Q4,

stock already has hit a low

14 Feb 18 - Strong profit

for declared for Dec17,

stock almost at peak

announced. Loss higher

8 Dec17 – Strong

financial results for Q2

[PP]

9 May 18 - Merger scheme of

Jet with Jet Lite not approved

Biggest decline in stock

prices was between 1 May

and 23 May before results

for Mar18 were announced

3

price movement over last three years and timing of key news/events are

are presented in

0 levels by Jan 18. Company

good numbers and profitability every quarter from Jun15 to Dec17.

This provided a strong

23 May18 huge loss declared for Q4,

stock already has hit a low[No PP]

13Aug18 – Results

for Q1 not

announced.

Situation

worseningPP

28 Aug18, results

announced. Loss higher

than Mar18. PP

Biggest decline in stock

prices was between 1 May

and 23 May before results

for Mar18 were announced

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� Stock price further declined

Rs. 222 in Oct18. This followed the significant losses declared in Mar18

and Jun18 results, thereby giving investors time to react to the financial results

and act (sell) accordingly.

losses in history were strong

� Stock prices of Indigo and Spice also declined in these periods

however the decline was much lower as their losses also were much lower than

Jets.

� There were rumours and expectations throughout the last three years and more

so in the last year about

airline. These seemed to be driving/supporting stock price of Jet Airways.

importance to positive numbers in Mar16 and Mar17, the strong brand name

and equity investment by Etihad in valuing the airline

Observations

� Reasonable financial performance

provided strong indicators for

to Jan 18 (Rs. 870).

� Price of Jet declined significantly between 1 May 18 and 23 May

results for Mar 18 were announced

However, investors did not have any

May 18 that would have hel

information in this period was:

o First week of May18

Networth of Jet Airways

was consistently

negative

declined from Rs. 400 in May 18 to Rs. 318 in July 18 and to

222 in Oct18. This followed the significant losses declared in Mar18


and act (sell) accordingly. Two quarters of consecutive losses which

strong predictors for investors to act (sell).

of Indigo and Spice also declined in these periods


There were rumours and expectations throughout the last three years and more

so in the last year about possible buy-out of Jet Airways by a stronger (Foreign)

These seemed to be driving/supporting stock price of Jet Airways.

� The networth of Jet Airways was negative since

2013. The Company had net losses in all years other

than Mar16 and Mar 17 and clear difficulties in

servicing debt. However, the market seemed to give


and equity investment by Etihad in valuing the airline.

performance from Jun15 to Dec17 driven by

provided strong indicators for rise in stock price of Jet between

Price of Jet declined significantly between 1 May 18 and 23 May

were announced (Red arrow in the chart on price movement)

nvestors did not have any financial information between Feb 18 and

May 18 that would have helped take appropriate decisions.

information in this period was:

First week of May18 - The merger with Jet Lite was not been approved.

4

318 in July 18 and to

222 in Oct18. This followed the significant losses declared in Mar18 results


which exceeded all

(sell).

of Indigo and Spice also declined in these periods (May to July 18)


There were rumours and expectations throughout the last three years and more

out of Jet Airways by a stronger (Foreign)

These seemed to be driving/supporting stock price of Jet Airways.

Airways was negative since

net losses in all years other

and clear difficulties in

However, the market seemed to give


to Dec17 driven by low fuel prices

between Jan 17 (Rs. 350)

Price of Jet declined significantly between 1 May 18 and 23 May before the

in the chart on price movement).

financial information between Feb 18 and

ped take appropriate decisions.Some relevant

not been approved.

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o Oil prices had increased marginally in this period though increase was

substantial in ea

Annexure 2).

o Mutual funds sold

� The loss declared for Mar 18 and Jun18 quarter had sufficient predictive power

in terms of the price declines thereafter

Indigo suffered significantly

wrong. However, most of the price fall had happened prior to Jun18 hence

investors could have saved some of

already been significantly

� A relevant question is whether a single quarter can predict future performance

or if it should be considered a one

higher than in any other financial year. Also, other airlines had not suffered a

similar loss. Both these points (coupled ironically

price from 1 May to 23 May) would strengthen the view that time had come to

sell.

� The Sep18 quarter was bad for Jet though it was worse for Spice Jet and Indigo.

However, both airlines sho

Jet Airways by showing small profit compared to 6%

both Indigo and Spicejet the loss appeared to be one off hence not a strong

enough predictor to act.

� The stock price of Jet over last six months seems to be afloat purely based on

expectation of revival and a new management taking over as otherwise there

seems to be no intrinsic value for equity shareholders.

Conclusion on PP

increased marginally in this period though increase was

earlier periods i.e. between Jun17 to May18 (Refer

sold 3.4 million shares between Mar18 and Jun18.

The loss declared for Mar 18 and Jun18 quarter had sufficient predictive power

in terms of the price declines thereafter – this is further more becaus

significantly lower losses hence Jet was clearly doing something

However, most of the price fall had happened prior to Jun18 hence

saved some of their money, the value of their shares had

significantly eroded.

A relevant question is whether a single quarter can predict future performance

or if it should be considered a one-off. In case of Jet, the loss in Mar18 was much


. Both these points (coupled ironically with the decline in market


The Sep18 quarter was bad for Jet though it was worse for Spice Jet and Indigo.

However, both airlines showed much better Dec18 financial results compared to

by showing small profit compared to 6% operating


enough predictor to act.

over last six months seems to be afloat purely based on


seems to be no intrinsic value for equity shareholders.

5

increased marginally in this period though increase was

Jun17 to May18 (Refer

3.4 million shares between Mar18 and Jun18.

The loss declared for Mar 18 and Jun18 quarter had sufficient predictive power

this is further more because Spice and

hence Jet was clearly doing something

However, most of the price fall had happened prior to Jun18 hence while

value of their shares had

A relevant question is whether a single quarter can predict future performance

off. In case of Jet, the loss in Mar18 was much


the decline in market


The Sep18 quarter was bad for Jet though it was worse for Spice Jet and Indigo.

wed much better Dec18 financial results compared to

operating loss for Jet. For


over last six months seems to be afloat purely based on


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� Price rise between Jan17

The Financial results had

profits were followed by increase in prices (

role).

� Significant price fall between 1 May

[PP].

The price collapsed the most in this period. However, as results were not

declared, investors had little predictive power based on financials

determinants of price decline could be rise in fuel prices

with Jet Lite). It would be

to some information about the Company that was no

market coming as it was a few weeks before results were published on 23

May18.

� Continuing fall after May

[PP].

The terrible financial results declared for Mar18, Jun18

and thereafter provided strong predictive power for

further decline in stock prices.

Note: Oil prices are a key driver for financial results of Airlines. However,

as the change in oil prices would affect all airlines equally the impact of

the same has not been considered in the analysis.

Oil price movement. Jet has mentioned that the losses in Mar18 were

due to maintenance charges, however, despit

than other airlines.

The purpose of this note is to compare the relationship between operating profits/losses and stock

prices .However, there are many reasons for movement in prices apart from

As Jet Lite was not significant, only results of standalone Jet Airways have been analysed.

Jan17 and Jan18 – High predictive power [PP]

The Financial results had Predictive Power from Jun15 to Dec17

wed by increase in prices (low fuel prices also played a large

Significant price fall between 1 May18 and 23 May18– No predict

price collapsed the most in this period. However, as results were not

declared, investors had little predictive power based on financials

price decline could be rise in fuel prices and non

would be interesting to find out if the decline could also be due

information about the Company that was not available to the wider


May18 – High predictive power

terrible financial results declared for Mar18, Jun18

and thereafter provided strong predictive power for

further decline in stock prices.

Note: Oil prices are a key driver for financial results of Airlines. However,

the change in oil prices would affect all airlines equally the impact of

the same has not been considered in the analysis. (Refer Annexure 2 for

Jet has mentioned that the losses in Mar18 were

due to maintenance charges, however, despite such one-time costs, the loss of Jet was much higher


.However, there are many reasons for movement in prices apart from operating profits/losses.


Financial results have

predictive power if

assessed

a large part of decline in

the price

results were declared

indicating importance of

news and inside/smart

information about the

Company

6

[PP].

from Jun15 to Dec17 as the quarterly

low fuel prices also played a large

No predictive power

price collapsed the most in this period. However, as results were not

declared, investors had little predictive power based on financials (key

and non-merger of Jet

if the decline could also be due

t available to the wider


costs, the loss of Jet was much higher


operating profits/losses.


Financial results have

predictive power if

assessed well. However,

a large part of decline in

the price Jet was before

results were declared

indicating importance of

news and inside/smart

information about the

Company.

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Reaching conclusions after an event has happened is always easy. Our subsequent

predictive power reports will analyse predictive power of

on results announced in months of April and May 2019.

For clarifications contact:

Analyst team: [email protected]

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The securities discussed and opinions expressed in this report may not be suitable for

all investors, who must make their own investment decisions, based on their own

investment objectives and financial situation

evaluate risks associated with their investments

any loss or damage of any kind arising out of the use of this report


reports will analyse predictive power of financial statements based

on results announced in months of April and May 2019.



objectives and financial situation. The reader should independently

isks associated with their investments. We accept no liability

any loss or damage of any kind arising out of the use of this report.

7


financial statements based



should independently

ty whatsoever for

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Annexure 1

Jet Airways – key financial parameters

Note: operating profit used in this report is

Jet Airways – Summary results for past 10 years

Spicejet – key financial parameters

Indigo – key financial parameters

30-Sep-16 31-Dec-16

Total Income From Operations 5,420 5,478

Power & Fuel 1,307 1,429

Employees Cost 813 700

Admin. And Selling Expenses 629 639

Other Expenses 2,361 2,425

P/L Before Other Inc. , Int., Excpt.

Items & Tax 60 73

Power and Fuel as % of Total

Income 43.5

Power, Admin and other expenses 79.3

Operating Profit % of Total Income 1.1

Mar-09

Revenue 11,571 10,439

P/L Before Other Inc. , Int., Excpt.

Items & Tax -1,558 -500

Operating Profit % of Total Income -13.5

30-Sep-16 31-Dec-16

Total Income From Operations 1,400 1,642


30-Sep-16 31-Dec-16

Total Income From Operations 4,167


key financial parameters

Note: operating profit used in this report is P/Lbefore other income, interest and exceptional.

Summary results for past 10 years

key financial parameters

31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18

5,478 5,449 5,649 5,627 6,086 5,925 6,010

1,429 1,581 1,524 1,526 1,840 2,063 2,332

700 779 725 769 729 773 816

639 617 683 656 700 788 561

2,425 2,363 2,572 2,415 2,537 3,066 3,319

73 (80) 0 107 124 (930) (1,131)

44.3 43.4 45.5 42.9 41.7 51.7

82.0 83.7 84.6 81.7 83.4 99.9

1.3 -1.5 0.0 1.9 2.0 -15.7

Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16

10,439 12,737 14,816 16,853 17,302 19,573 21,167

-500 -143 -1,329 -592 -2,946 -1,055 1,095

-4.8 -1.1 -9.0 -3.5 -17.0 -5.4


1,642 1,626 1,870 1,814 2,082 2,029 2,236

7.5 0.6 9.2 5.4 11.7 0.5


4,987 4,848 5,753 5,291 6,178 5,799

10.1 8.3 17.4 12.0 14.3 0.0

8

30-Jun-18 30-Sep-18 31-Dec-18

6,010 6,161 6,148

2,332 2,420 2,388

816 803 781

561 637 579

3,319 3,331 2,671

(1,131) (1,142) (381)

55.2 54.1 43.5

103.4 103.7 91.7

-18.8 -18.5 -6.2

Mar-16 Mar-17 Mar-18

21,167 21,552 23,287

1,095 1,482 -768

5.2 6.9 -3.3

30-Jun-18 30-Sep-18 31-Dec-18

2,236 1,881 2,487

0.9 -20.5 2.1

30-Jun-18 30-Sep-18 31-Dec-18

6,512 6,185 7,916

-2.6 -19.2 0.2

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Annexure 2 – Airline Fuel price movement in USD

Airline Fuel price movement in USD

9

Predictive power of Jet Airways - Rupee Tax · Jet Airways has recently suspended operations after a turbulent year which saw long and unfruitful negotiations between the owners,

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