Indian Airlines Sector Ready to Take Off

Initiating Coverage
March 26, 2010

Comparative Returns (%)
Stock Returns (%) 1M 3M 6M 12M
Indian Airlines Sector
Jet Airways 5.1 -10.5 48.4 276.9
SpiceJet 3.6 17.8 73.2 336.9
Kingfisher -0.1 -10.3 -4.0 91.8 Ready to take off…
The airline sector has witnessed a significant upturn in Q3FY10
Stock Metrics
(domestic pax traffic growth of 28% YoY) after experiencing a severe
Jet Airways REDUCE
contraction throughout the major part of FY09. Growth is driven by
CMP Rs 473.0
TP Rs 444.8
optimism about the future, market share gains by low fare carriers
Upside % -6.0 (LFCs) and stable crude oil prices. LFCs are likely to benefit from the
Market Cap Cr 4,083.4 moderate growth of crude oil prices in FY11E-12E, contributing to
FY10E FY11E FY12E higher pax growth and load factors for the sector. We are initiating
Revenue Rs cr 12,121 13,852 15,663 coverage on airline sector with a STRONG BUY rating on Spicejet and
EBITDA Rs cr 1,012 1,244 1,928 REDUCE rating on Jet Airways.
EBITDAM % 8.4 9.0 12.3
PAT Rs cr -568 31 696 Improved macroeconomic environment to boost pax growth
PATM % -4.7 0.2 4.4
EPS Rs -53.6 2.9 65.6 With the economy gaining momentum (GDP grew 7.9% in Q2FY10) and
upward revision of FY10 growth forecasts by the RBI (7.5% from 6%
SpiceJet STRONG BUY
earlier), we expect business and consumer confidence to improve
CMP Rs 58.0
TP Rs 72.0
contributing to growth of domestic pax (CAGR of 12.8% during FY10E-
Upside % 24.1 12E). Our forecasts are based on a pax growth multiple of 1.5x GDP
Market Cap Rs Cr 1,398.0 growth (ex-agriculture). As the economy comes out of the slowdown,
FY10E FY11E FY12E consumers will increasingly prefer low cost travel, benefiting LFCs
Revenue Rs cr 2,202 2,681 3,216 (market share of 43.7% in Q4FY12E vs. 34.1% in FY09). Furthermore, the
EBITDA Rs cr 74 216 335 moderate growth of crude oil prices expected in FY11E-12E (average of
EBITDAM % 3.4 8.1 10.4 US$83.9 per barrel in FY12E vs. US$76.9 in Q3FY10) will limit growth of
PAT Rs cr 105 244 324 passenger fares, further boosting demand for LFCs (due to high co-
PATM % 4.8 9.1 10.1 relation between ticket prices and crude oil prices).
EPS Rs 4.4 8.0 10.6
Stock Price movement

Higher load factors to drive earnings
600 20,000
We believe the capacity rationalisation undertaken by airlines was a
positive move, with domestic sector capacity decreasing by 2.4% YoY in
450 15,000 FY09. As the current industry capacity is more in line with demand,
domestic load factors have steadily improved (78.1% in Q3FY10 vs. the
300 10,000 bottom of 62.2% in Q3FY09). We expect the sector’s profitability to
expand with continued growth of domestic load factor (75.6% in FY12E
150 5,000 vs. 63.7% in FY09). However, yields will continue to remain under
pressure due to increased competition in the LFC segment.
0 0
Nov-09
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Jan-10
Mar-10
Key risks Include

JAL - LHS SpiceJet - LHS
Kingfisher - LHS Sensex - RHS
• Premature withdrawal of the economic stimulus package by the
government
Sector Summary
In crore FY09 FY10E FY11E FY12E
• External shocks in the global economy can derail GDP growth
Domestic pax-traffic 3.9 4.5 5.0 5.7
momentum, which may, in turn, decelerate pax traffic growth
International pax-traffic 1.0 1.0 1.1 1.2
Domestic RPKM 3,770.3 4,332.5 4,803.9 5,537.4
International RPKM 4,074.0 3,857.9 3,742.2 4,041.3
• Additionally, the rise in competition among operators or
Domestic ASKM 5,915.9 5,952.6 6,443.5 7,342.6 significant rise in fuel prices from current levels may dent
International ASKM 6,217.0 4,874.5 5,526.6 5,558.3 operators’ margins and adversely impact pax traffic growth of
Domestic Load factor (%) 63.7 72.8 74.6 75.4 LFCs (higher proportion of fuel costs in total operating costs)
International Load factor (%) 65.5 79.1 67.7 72.7
Analyst’s name
Rashesh Shah
Rashes.shah@icicisecurities.com
ICICIdirect.com | Equity Research

Recommendations
The Indian airline sector is witnessing a significant change in its
operational structure with major full service carriers (FSCs) such as Jet
Airways and Kingfisher rapidly converting a majority of their capacities
into low cost. The passenger preference has also tilted towards LFCs as
the preferred mode of travel primarily due to the economic slowdown and
high fuel prices in the past few quarters. SpiceJet, a pure-play LFC, has
witnessed a rise in its market share to 12.5% in Q3FY10 from 10.5% in
Q3FY09. Although the topline of airlines is still under pressure due to
decline in yields, the improved pax traffic in Q3FY10 (29.9% YoY) and
stable crude oil prices (average of US$76.9 in Q3FY10 vs. US$58.3 in
Q3FY09) has raised hope for a bright future ahead. We believe an
improvement in the macroeconomic environment, stable crude oil prices
and improvement in load factors due to strong capacity rationalisation
plans will help the airlines to improve their EBITDA margin. Our rating
rationale is based on EV/EBITDA. We prefer SpiceJet due to its strong
fundamentals and increasing brand preference in the fast growing low
cost air travel.

Page 2
Indian airlines sector

Rebound of domestic pax growth in Q3FY10
Domestic passenger (pax) growth witnessed an upturn in Q3FY10 (28%
YoY) driven by the improved macroeconomic performance (GDP growth
of 7.9% in Q2FY10 vs. 6.1% in Q1FY10) and lower airline fares (yields
have declined as a result of lower fuel prices and focus on the LFC model
Beginning of new phase of sector growth by airlines). As a result of the capacity rationalisation by operators (return
in Q3FY10 of aircraft to lessor and leasing self-owned aircraft) and solid growth of
pax traffic, domestic load factors significantly improved to 78.1% in
Q3FY10 (vs. 62.2% in Q3FY09), allowing airlines to sustain low yields.
With pax traffic growth scaling new all-time highs in December 2009 (44.5
lakh) despite the recent rise in crude oil prices (US$76.9 per barrel in
Q3FY10 vs. US$59.5 in Q1FY10), we believe this is the beginning of a new
growth phase for the industry. It has witnessed severe contraction
throughout FY09 (pax traffic declined by 11% YoY).
For Q4FY10, we expect a continuance of the recent uptrend as a robust
booking window has been observed in January 2010 (as per industry
sources), with operators under our coverage hinting at peak load factor as
high as 80%. In our view, the buoyancy in demand is driven by the
improved business and consumer confidence (upward revision of FY10E
GDP forecasts to 7.5% from 6.0% earlier) and optimism about the future.
Exhibit 1: Monthly domestic pax* traffic
50 50
44
41
39 39 40 39 39 38 39 38
36 37 36 36 37 36 35 36
38 35 36 35 34 25
33 32 33 33 33
30 31 31 31 32
26
25 0
13 -25
0 -50
Nov-07
Nov-08
Nov-09
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Dec-08
Jan-09
Apr-09
Feb-09
Mar-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Dec-09
Domestic Passenger - Lakh (LHS) YoY Growth % (RHS)
Source: Source: DGCA, MOPSI, ICICIdirect.com Research, * Pax=Passenger
Challenges for the airline sector first appeared at the end of FY08 with
crude oil prices crossing US$100 per barrel resulting in significant margin
erosion for operators. As a result, airlines were forced to raise ticket
prices (gross yields increased by an average of 20% in FY09), resulting in
Pax traffic contracted by 11% in FY09 due to lower pax traffic. Despite average crude oil prices declining to US$58.3
high crude oil prices and global economic per barrel in Q3FY09 (vs. US$118.1 per barrel in Q2FY09), pax traffic
slowdown growth continued to remain under pressure due to the global economic
slowdown. The sector woes were further aggravated by the load factor
falling to 63.7% in FY09 (from 68.9% in FY08) as the sector was flooded
with excess capacity due to the robust demand in the boom period of
FY05-08 (pax traffic grew at a CAGR of 31.7%).

Page 3
Exhibit 2: Annual domestic pax traffic

500 443.8 70
394.7
400 357.9 50
300 252.0 30
194.5
200 156.8 10
137.1 128.5 139.5
100 -10
0 -30
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09
Domestic Pax - Lakhs (LHS) Growth YoY %
Source: DGCA, ICICIdirect.com Research
High crude oil prices during Q4FY08-Q2FY09 led to load factors crashing
to 60.4% in August 2008. Further, load factor bottomed at 55.3% in
September 2008 due to the global economic crisis.
Exhibit 3: Historical load factor of all airline operators
100 150
90 120
80 90
70 60
60 30
50 0
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Passenger Load Factor - % (LHS) Crude oil prices - USD per barrel (RHS) Oct-09
Source: DGCA, MOPSI, ICICIdirect.com Research
Exhibit 4: International crude oil and jet fuel prices ( forecasted by EIA)
150
125
100
Moderate growth expected for crude oil prices
75
during FY11E-12E
50
25
0
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Crude Oil (USD per Barrel) Jet Fuel (Cent per Litre)
Source: Energy Information Administration(USA)

Page 4
Low penetration of air travel in India

Despite the robust growth of pax traffic witnessed over the past few
years, we believe significant growth opportunities exist for the aviation
sector in India due to the current low penetration of air travel. As per our
estimates, domestic pax per head in India (i.e. 43 per 1000 population) is
significantly lower than China and the US. We expect strong growth in
penetration of air travel to be driven by the sustained growth of per capita
Substantial growth potential due to the income (CAGR of 6.0% to Rs 36,876 during FY10E-12E), increased
current low penetration of air transport in
affordability accorded by LFCs and potential upgrading by the vast user
India
base of Indian Railways.
We believe a substantial upgrade is only possible if airlines continue to
keep ticket prices low, which is contingent on movement of crude oil
price. As per estimates of the Energy International Administration (EIA),
average crude oil prices will increase to US$83.9 per barrel by FY12E as
the global economy recovers (3.0% in FY11E and 3.5% in FY12E). In our
view, the moderate growth expected for crude oil prices will drive growth
of pax traffic, leading to increased penetration of air travel in the country.
Exhibit 5: Air pax per head (2009)
600 2.0
520
450 1.5
300 1.0
215
150 0.5
43
0 0.0
United States China India
Domestic Pax (crore) - LHS Air pax per head - RHS
Source: Economic Intelligence Unit (EIU),USA, ICICIdirect.com Research

Page 5
Domestic pax to grow 1.5x GDP (ex agriculture)

We estimate that domestic pax traffic will grow at a CAGR of 12.8%
during FY10-12E driven by sustained growth of the economy, improved
Domestic pax traffic estimated to grow at airport infrastructure, moderate growth of crude oil prices (average price
a CAGR of 12.8% during FY10E-12E of US$83.9 per barrel in FY12 vs. 76.9 per barrel in Q3FY10) and gain in
market share by LFCs.
Our growth forecasts are based on the assumption of 1.5x growth of
domestic pax vis-à-vis GDP growth (ex agriculture) in FY11 and FY12. Pax
growth averaged at 1.5x GDP in FY01-09. As per our analysis, a strong
relationship exists between growth of domestic pax traffic and growth of
GDP (ex-agriculture); correlation of 0.91 in FY04-09 with an R-square of
0.82.
Key risks to our forecasts include a higher-than-expected rise in crude oil
prices that may compel operators to hike ticket prices, consequently
slowing down pax traffic growth. Further, the impact of an external shock
in the global economy or urgency in withdrawal of stimulus package by
the government may adversely impact domestic demand.
Exhibit 6: Forecasted domestic pax

60 6.0
45 4.5
30 3.0
Domestic pax traffic assumed to grow at
1.5x GDP (ex-agriculture) growth rate in 15 1.5
FY11-12E
0 0.0
-15 -1.5
-30 -3.0
Q1FY10E
Q4FY10E
Q3FY11E
Q2FY12E
Q1FY01
Q4FY01
Q3FY02
Q2FY03
Q1FY04
Q4FY04
Q3FY05
Q2FY06
Q1FY07
Q4FY07
Q3FY08
Q2FY09
GDP (Ex agri) YoY% (LHS) Domestic Pax YoY% (LHS) PAX/GDP Growth Multiple (RHS)
Exhibit 7: Strong correlation between GDP (ex agri) and pax traffic (FY04-09)
GDP (ex-Agri) Industrial GDP Services GDP Agri GDP
Correlation 0.91 0.90 0.85 0.39
R-Squared (Regression) 0.82 0.81 0.72 0.15
Rapidly improving infrastructure provides an upside to pax growth

Total Rs 49,200 crore earmarked for We believe the rapidly improving air transport infrastructure in India
improvement in air transport infrastructure provides a further upside to our pax traffic growth forecasts. In the
Eleventh Five Year Plan (2007-12), the government has earmarked Rs
49,200 crore to upgrade infrastructure, improve connectivity and improve
affordability of air transport. As a part of the plan, the Airport Authority of
India (AAI) plans to modernise all the metro airports and upgrade 35 non-
metro airports.

Page 6
Exhibit 8: Airport development plans of AAI

City Activity Timeline
Kolkata Modernisation/Expansion Project awarded in October 2008
Chennai Modernisation/Expansion Project awarded in August 2008
Bangalore Expansion/New Terminal Completion by 2014
Delhi New Integrated Terminal Completion by July 2010
Mumbai New Domestic Terminal Completion by March 2011
Mumbai Integrated Passenger Terminal Completion in 2012
Source: Planning Commission, ICICIdirect.com Research
Budget airlines expected to benefit from demand pickup

A new business model has emerged with Jet Airways launching a ‘no
frills brand’ Jet Airways Konnect (JAK) in May 2009, further widening the
scope for budget travel in India (in addition to LFCs). JetKonnect was
LFCs to gain market share in FY11E-12E due
launched by the operator to deal with the economic slowdown. By
to increased customer preference as Q3FY10, Jet Airways had converted nearly 70% of its capacity to Jet
economy comes out of slowdown Airways Konnect (a mid-segment between the FSC, Jet Airways and LFC,
Jet Lite), leading to market share gains. Similarly, Kingfisher Airline has
also shifted a significant portion of its domestic capacity to its economy
brand ‘Kingfisher Red’.
In our view, budget airlines will benefit from the pax traffic growth in
FY11E due to the increased price elasticity of demand (consumers are
likely to opt for low cost travel as the economy comes out of the
slowdown). Further, we expect muted growth of pax fares in FY11E-12E
due to the moderate growth expected for crude oil prices, benefitting
LFCs. Ticket prices of LFCs have a higher elasticity to changes in crude oil
prices vis-à-vis FSCs as fuel costs account for 45-50% of total operating
costs of LFCs vs. 35-40% for FSCs.
Budget FY10E-11E has proposed to include economy class travel under

the purview of service tax of 10% (earlier applicable to business class and
above). This will lead to increase in ticket prices in the future. However,
we feel that revision of individual tax slabs will increase the disposable
income in the customer’s hands, thus minimising the negative impact of
the introduction of service tax for air travellers. Consequently, we believe
that major LFCs (JetLite, Indigo, Spice Jet and Go Air) will be able to
increase their market share to 43.7% by Q4FY12E (vs. 40.4% in Q3FY10
and 32.4% in Q4FY08) primarily due to visible preference of customers
towards low cost travel as the economy comes out of a slowdown.
Exhibit 9: Domestic market share – LFCs vs. FSCs
100
75
50
%
25
0
Q1FY06
Q3FY06
Q1FY07
Q3FY07
Q1FY08
Q3FY08
Q1FY09
Q3FY09
Q1FY10
Q3FY10
Q1FY11
Q3FY11
Q1FY12
Q3FY12
NACIL FSCs LFCs Other private players
Source: DGCA, ICICIdirect.com Research, LFCs- Indigo, SpiceJet, Jet Lite and Go Air, FSCs - Jet Airways and
Kingfisher, Others private players includes Air Deccan, Paramount and MDLR

Page 7
Benign crude oil prices to boost load factor of LFCs

Majority of FSCs have shelved their fleet acquisition plans for the next two
or three years. However, LFCs are likely to take delivery of aircraft in
FY11E-12E that were ordered in the past.
Domestic capacity, as measured by ASKMs, witnessed growth at a CAGR
of 29.7% during the boom period of FY05-08. However, as a result of
economic slowdown and consequent contraction in demand, airline
Load factor of LFCs estimated to improve to operators undertook capacity rationalisation (capacity declined by 2.4% in
77.6% in FY12E (vs 67.8% in FY09) driven by FY09). Despite this, domestic capacity of LFCs increased by 14.1% in
the sustained demand for low cost travel and FY09 as this segment has been successful in maintaining an optimum
benign fuel prices
capacity level due to prudent capacity addition during the growth phase
of FY05-08. As a result, we estimate that fleet size of LFCs will continue to
increase during FY10E-12E with the revival of demand. SpiceJet (+26.3%
to 24), Indigo (+25.0% to 30) Go Air (+66.7% to 10), etc. Among FSCs,
we expect NACIL to acquire new aircraft during the period FY10E-12E.
However, the majority of the new aircraft will replace the old fleet, thus
reducing the maintenance costs. Air India placed orders for 111 aircraft in
2007, primarily to Boeing and Airbus. All of these are expected to be
delivered during 2007-2012.
Consequently, we expect the load factor, a key determinant of utilisation,
to increase for LFCs in FY09-12E (77.6% in FY12E vs. 67.8% in FY09).
Further, the moderate growth expected for crude prices in FY11-12E will
drive pax growth for LFCs, contributing to higher load factor. However,
we expect a steeper rise in load factor of FSCs (77.5% in FY12E vs. 65%
in FY09) due to capacity rationalisation (and no new capacity in FY10E-
12E) and conversion of majority of capacity into the low cost model in the
last few quarters.
LFC’s load factor fell below FSCs in Q4FY08 (70.0% for LFCs vs. 71.5% for
FSCs) due to high crude oil prices as LFCs’ passengers downgraded to
alternative means of transport (e.g. railways) with airlines raising ticket
prices.
Exhibit 10: Load Factors (%) – LFCs vs.. FSCs
85
75
%
65
55
Q1FY06
Q2FY06
Q3FY06
Q4FY06
Q1FY07
Q2FY07
Q3FY07
Q4FY07
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
LFCs FSCs
Source: DGCA, ICICIdirect.com Research, LFCs- Indigo, SpiceJet, Jet Lite and Go Air, FSCs - Jet Airways and Kingfisher

Page 8
Yields still under pressure

Yields, as measured by revenue per RPKM, have declined significantly
due to the shift to the LCF model, with the yield of Jet Airways declining
by 29.3% and 11.6% each for JetLite and SpiceJet, between Q3FY09 and
Limited upside to yields due to focus on
Q3FY10. As airlines continue to focus on the LFC model over the next few
LFC model by airlines and moderate
quarters (and expected increase in competition in the space) combined
increase in fuel prices
with the moderate increase expected for crude oil prices, we estimate that
yields will continue to remain under pressure.
Out of our coverage companies, we expect the yield of Jet Airways to
remain highest due to conversion of its idle capacities to JetKonnect
(ticket prices typically 10-15% higher than pure-play LFCs).
Exhibit 11: Domestic net yields (Rs.)
8.0
6.0
4.0
2.0
0.0
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Jet Airways - Domestic Jet Lite SpiceJet
Source: DGCA, ICICIdirect.com Research
Stretched balance sheet
Access to funding a key challenge In our view, the over-leveraged balance sheet due to the aggressive fleet
facing airlines addition in the past is the biggest challenge faced by airlines in India. In
FY09, the debt/equity ratio of Jet Airways was 7.6x, while the net worth of
Kingfisher and NACIL was negative. The combined debt was Rs 36,000
crore for Jet Airways, Kingfisher and NACIL.
Despite the pickup of pax traffic and stabilisation of yields, we expect

airlines to find it tough to pay back debt and service the significant
interest expenses. As a result, airlines are raising equity to improve their
liquidity position (and payout borrowings, primarily aircraft loans).
Exhibit 12: Equity raising plans of select airlines
Operator Fund requirement Status
Government will provide a bailout pakage of Rs Rs 800 crore to be received by end of

Air India 2000 crore in the next 2-3 years FY10
Permission from government to raise nearly USD USD 200 mn (Rs 9,300 crore) to be
Jet Airways 400 mn (Rs 18,600 crore) through the QIPs route raised by the end of FY10
In discussion with PE firms to raise capital worth

Kingfisher USD 350-400 million (Rs 16,275-18,600 crore) No funds raised till Q3FY10
Source: Company, ICICIdirect.com Research

Page 9
Exhibit 13: Interest coverage ratio
10.0
3.0 2.2
5.0 0.3
0.0
-5.0 -0.2 -1.8 -2.2
-10.0
-2.2
-15.0
-20.0 -15.8 -15.3
-25.0 -22.3
-30.0 -25.3 -18.9
-26.6
-35.0 -29.6
-40.0
-45.0 -41.4
FY05 FY06 FY07 FY08 FY09
Jet Airways - Consolidated Kingfisher SpiceJet
In our view, the government’s restrictive FDI policy is a major hurdle for
the sector’s growth. At present, foreign airlines are not allowed to invest
in the domestic sector, even though FDI limit in the sector has been
capped at 49%. We believe a relaxation of the norms will allow the cash
starved carriers to raise the much needed funds and benefit from
technical expertise of the foreign partner. However, there has been no
indication from the government towards this. We do not expect things to
move rapidly on this front.
Exhibit 14: Foreign ownership limits in sector

Segment Foreign ownership limit
Passenger airlines 49% FDI and 100% investment by NRI
Non schedule airlines, chartered airlines, and cargo airlines 74% FDI and 100% investment by NRI
Ground handling services 74% FDI and 100% investment by NRI
Maintenance and repair organisations, Training institutes 100% FDI
Source: Govt filings,, ICICIdirect.com Research

Page 10
Risks and Concerns
Significant increase in crude oil prices

As the global economy recovers, international crude oil prices have
already increased by 29.3% during 9MFY10 to US$77 per barrel. A higher-
than-expected rise in crude oil prices during FY11-12E due to a stronger-
than-expected recovery of the global economy and speculative activities
can result in pax traffic growth coming under presure, especially for LCFs
where fuel costs account for a higher proportion of total operating costs
(compared to FSCs). Pax traffic and, consequently, the load factor
declined significant in FY09 with crude oil prices scaling new highs
(US$124 per barrel in Q1FY09 and US$118 per barrel in Q2FY09).
Urgency in withdrawal of stimulus packages

The IMF recently raised its 2010 global GDP forecasts to 3.9% (from 3.1%)
driven by improved economic performance during the last six months.
However, substantial credit for the global economic recovery goes to
increased spending by governments across the globe. A premature
withdrawal of fiscal stimulus by governments may adversely impact the
global economic recovery. Consequently, this may slow down India’s
economic growth, resulting in a likely decline in domestic pax traffic
growth. In particular, the Indian government has gone ahead with partial
withdrawal of fiscal stimulus. Budget-2010 has proposed an increase in
central excise duty (10% vs. 8% earlier), MAT (18% vs. 15% earlier),
custom duty on crude petroleum (by 5%).
Excess capacity
As domestic pax traffic growth gains momentum with improving business
confidence, airline operators may place large orders for new aircraft in
anticipation of sustenance of buoyancy in demand. An oversupply
situation is possible in case there is a slowdown of pax traffic (due to
lower-than-expected economic growth or increase in crude oil prices),
contributing to margin contraction for operators.
Inability to raise funding

In our view, access to funding is a key challenge facing the aviation
sector. Large operators continue to grapple with significant debt on their
balance sheets due to aggressive fleet addition in the past, consequently
adversely impacting their liquidity conditions. Further, restriction on
foreign ownership in the sector by the government remains an inhibitor
for domestic operators looking to raise the much needed capital. We
believe operators will be unable to take advantage of the expected
buoyancy in pax traffic in FY12E if they are unable to raise the required
funding.

Page 11
Valuations
The Indian airline sector is witnessing a significant change in its
operational structure with major FSCs such as Jet Airways and Kingfisher
rapidly converting a majority of their capacities into low cost. The
passenger preference has also tilted towards LFCs as the preferred mode
of travel primarily due to the economic slowdown and high fuel prices in
the past few quarters. SpiceJet, a pure-play LFC has witnessed a rise in its
market share to 12.5% in Q3FY10 from 10.5% in Q3FY09. Although the
We prefer SpiceJet on the back of its strong topline of the airlines is still under pressure due to a decline in yields, the
fundamentals and increasing brand presence improved pax traffic in Q3FY10 (29.9% YoY) and stable crude oil prices
(average of US$76.9 in Q3FY10 vs. US$58.3 in Q3FY09) has raised hopes
for a bright future ahead. We believe an improvement in the
macroeconomic environment, stable crude oil prices and improvement in
load factors due to strong capacity rationalisation plans will help the
airlines to improve their EBITDA margin.
Our rating rationale is based on EV/EBITDA. We prefer SpiceJet ahead of
Jet Airways due to its strong fundamentals and increasing brand
preference in the fast growing low cost air travel (due to increasing
preference of customers). We believe that other multiples such as
EV/EBITDAR (including lease rentals) cannot provide good indicator as
enterprise value (EV) of players owning an aircraft always remains higher
compared to players operating a majority of its fleet size under lease
resulting in higher EV/EBITDAR multiples for players operating owned
fleets. We have compared Jet Airways with major South-East Asian
airlines that have a strong domestic market share and also have a sizable
international presence (similar to Jet Airways). For SpiceJet, we have
looked at the long-term EV/EBITDA band chart to derive the valuations.
Exhibit 15: Comparative Valuation
Company EPS P/E (x) EV/Sales (x) EV/EBITDA (x) ROCE (%)
FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E
Jet Airways -111.4 -53.6 2.9 NA NA 162.6 1.5 1.5 1.2 NA 17.5 13.6 -10.0 0.2 1.4
SpiceJet -14.0 4.4 8.0 NA 13.1 7.1 0.9 0.7 0.6 NA 19.7 7.4 -137.8 62.6 71.1
Exhibit 16: Global Valuation matrix

EV P/E EV/Revenue EV/EBITDA EV/EBIT P/BV
LC mn TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E
Air China 303,682 NA 37.9x 43.6x 5.9x 5.8x 5.0x 77.6x 28.9x 22.4x NA 136.0x 56.4x 7.2x 5.9x 5.2x
China Eastern Airlines Co. 61,798 NA 117.0x 52.2x 1.6x 1.4x 1.1x NA 15.7x 7.4x NA NA 19.3x 2.7x NA 18.5x
China Southern Airlines Co. 82,492 NA 120.0x 41.7x 1.5x 1.4x 1.3x NA 11.0x 7.4x NA 166.0x 33.3x 6.5x 5.1x 4.4x
EVA Airways 116,690 NA NA 17.5x 1.4x 1.6x 1.3x 71.8x 12.2x 10.3x NA NA 57.1x NA 1.5x 1.4x
Cathay Pacific 98,227 NA 22.1x 24.2x 1.1x 1.5x 1.3x NA 10.1x 8.8x NA 22.7x 22.5x 1.6x 1.5x 1.5x
Korean Air 12,559,972 NA 127.2x 15.7x 1.2x 1.3x 1.2x 19.5x 12.2x 8.9x NA 55.1x 22.5x 2.0x 1.6x 1.5x
Malaysia Airlines 3,375 NA NA NA 0.2x 0.3x 0.3x NA NA 7.6x NA NA 15.2x NA 0.9x 1.0x
Singapore Airlines 16,457 17.3x 774.0x 20.9x 1.0x 1.4x 1.2x 6.2x 9.3x 6.0x 18.2x 341.4x 19.6x 1.3x 1.4x 1.3x
Thai Airways International 173,502 NA 19.7x 13.0x 0.9x 1.0x 1.0x 34.6x 6.4x 5.7x NA 23.0x 19.3x 0.9x 0.9x 0.9x
Median 107,459 17.3x 117.0x 22.5x 1.3x 1.4x 1.2x 34.6x 12.2x 8.2x 18.2x 136.0x 22.5x 2.3x 1.5x 1.5x
Mean 1,359,594 17.3x 174.0x 28.6x 1.6x 1.7x 1.5x 42.0x 13.7x 9.8x 18.2x 178.2x 34.1x 3.1x 2.3x 3.8x
Adjusted Mean** 129,074 17.3x 84.8x 27.3x 1.3x 1.4x 1.2x 42.0x 12.6x 8.7x 18.2x 144.3x 31.3x 2.8x 2.0x 2.3x
**Adjusted mean is used to remove extreme values, either minimum or maximum.
LC - Local Currency
Source: Reuters, ICICIdirect.com REsearch

Page 12
Initiating Coverage
March 26, 2010
Rating Matrix
Rating : Reduce
Jet Airways (JETAIR)
Target
Target Period
:
:
Rs 444
12 months
Valuation concerns… Rs 465
Potential Upside : -5% Jet Airways (JAL) is the largest domestic airline operator in India with a
market share of 26.9% (Q3FY10). We believe the company would benefit
YoY Growth (%) from the recent upturn in domestic pax traffic (29.9% YoY in Q3FY10)
FY09 FY10E FY11E FY12E due to its strong market position and focus on the budget segment.
Net Sales 27.6 -7.3 14.3 13.1 However, it is also prone to major key risks that include slowdown of
EBITDA 426.9 -217.9 22.9 54.9 economic growth, steeper-than-expected increase in crude oil prices,
Net Profit NA NA LP NA leading to lower load factor and consequently profitability. We are also
EPS NA NA LP NA concerned with the adverse liquidity situation of the company (i.e. debt-
to-equity ratio of 5.7). Hence, we are initiating coverage on the stock
Stock Metrics with a REDUCE rating and a price target of Rs 444.
Bloomberg/Reuters Code JETIN:IN /JET:BO
Revival of sector to drive topline
Sensex 17,578
Average volumes 431,980.8 With the introduction of ‘all-economy’ Jet Airways Konnect (JAK)
Market cap (Rs crore) 4,083 services, we estimate strong domestic pax growth for JAL (CAGR of
52 week H/L 598.2/154.5 14.3% during FY10E-12E) as consumers will increasingly prefer low cost
Equity Capital (Rs crore) 86 travel with the economy coming out of the slowdown. JAL is expected to
Promoters Stake (%) 80.0
benefit from the revival of pax traffic in the domestic market (CAGR of
FII Holding (%) 7.7
12.8% in FY10E-12E). As a result, we estimate JAL’s revenues will grow at
DII Holding (%) 8.2
a CAGR of 15% to Rs 15,991 crore during FY10E-12E. Continued strong
performance of international operations is also expected to contribute to
Valuation matrix the topline growth (load factor of 81.5% in FY12E vs. 68.2% in FY09).
FY09 FY10E FY11E FY12E
Target PE -4.0 -8.3 152.9 6.8 Slow recovery in margin in FY10E and FY11E
EV/EBITDA -22.1 17.2 13.6 7.9
EV/Sales 1.5 1.5 1.2 1.0
Despite the expectation of higher load factor and stable crude oil prices,
Price/BV 1.9 2.0 1.9 1.5 we estimate that the net margin will remain negative in FY10E (-6.1%) due
to high interest costs (debt-to-equity ratio of 5.7 at the end of Q3FY10).
Margins are expected to improve slowly in the next two years (2.4% in
Stock Price movement (Stock vs. Nifty) FY11E and 6.7% in FY12E) due to increased competition from LFCs
(yields under pressure).
700 6000
600 5000 Valuations
500 4000 At the CMP of Rs 465, the stock is currently trading at 1.3x FY11E EV/sales
400
3000 and 13.6x its EV/EBITDA. The rebound in tourist traffic has improved the
Rs.
300
200 2000 outlook of the company. However, we continue to remain cautious on the
100 1000 liquidity situation of the company as the fresh capital expected to be
0 0 raised by the management (~Rs 930 crore/US$200 million) falls short of
the total payment obligation (~Rs 1,500 crore/US$330 million) of the
3/25/2009
5/25/2009
7/25/2009
9/25/2009
11/25/2009
1/25/2010
3/25/2010
company at the end of Q4FY10. Hence, we have valued JAL at a FY11E

EV/EBITDA of 12.8x, at a discount to its current valuation multiple,
computing a target price of Rs 444. We are initiating coverage on the
Jet Airways (LHS) NIFTY (RHS)
stock with a REDUCE rating, downside risk of 4.5%.
Analyst’s name
Rashesh Shah Exhibit 1: Consolidated Financial summary
rashes.shah@icicisecurities.com Rs. Crore FY08 FY09 FY10E FY11E FY12E
Net Sales 10,246 13,078 12,121 13,852 15,663
EBITDA -163 -859 1,012 1,244 1,928
Net Profit -654 -961 -568 31 696
EPS (Rs) -75.7 -111.4 -53.6 2.9 65.6
P/E (x) -6.2 -4.2 -8.8 162.6 7.2
RoCE (%) -7.8 -10.0 0.2 1.4 4.7
RoNW(%) -20.5 -30.3 -23.9 1.2 23.7

Company Background
Jet Airways (India) Ltd (JAL), India’s largest private sector airline with a
domestic market share of 26.9% in Q3FY10, began its operation in May
1993. The company strengthened its position in the aviation sector by
acquiring Air Sahara (rechristened as JetLite, the all-economy, no-frills
service) in April 2007. At present, JAL operates 112 aircraft, which flies
to more than 61 destinations in India and abroad.
In May 2009, JAL launched Jet Airways Konnect (JAK), an all-economy

service, by utilising the idle business class capacity of the parent
company, Jet Airways (JA). Out of the total fleet size of 89 aircraft, 27
aircraft are operated for JAK. JetLite operates predominantly on the
domestic routes with a fleet size of 23 aircraft.
In addition to the domestic operations, JA also provides international

flight services to several destinations including Gulf, Saarc countries,
Asia-Pacific, North America and Europe. In FY09, international
operations contributed 52.5% of JA’s revenues.
In 2005, the company raised Rs 1,899 crore through an IPO of 1.72

crore shares at a price of Rs 1,100 per share to fund its domestic and
international capacity addition.
Despite the Indian aviation sector witnessing a significant contraction in

FY09 (domestic pax traffic declined by 11.1% YoY), the consolidated
revenues of the company increased by 27% YoY to Rs 13,078 crore
driven by higher pax yields (high fuel prices contributed to increase in
fuel surcharges). During FY05-08, JAL witnessed robust revenue
growth (CAGR of 32.3%). This was fuelled by solid growth of domestic
pax traffic (CAGR of 31.7%), which was supported by the booming
economy (GDP grew at an average annual rate of 8.9%).
JAL, headquartered in Mumbai, has staff strength of 11,400 employees
(December 2009).
Exhibit 2: Domestic market share (Dec ‘09) Exhibit 3: Domestic pax traffic (in lakh)
G o A ir O thers Jet 30
S pice 5% 1% A irw ay 24
Jet s 18
13% 19% 12
Jet L ite 6
7% 0
Indigo
Q1FY08
Q3FY08
Q1FY09
Q3FY09
Q1FY10
Q3FY10
15%
K ingf is h
er JA - Domestic JA - International JetLite
NA CIL
22%
18%

Page 14
Investment Rationale
Jet Airways (India) Ltd (JAL) has emerged as the largest player in the
domestic aviation sector with a market share of 26.9% at the end of
Q3FY10. JA, the parent company, is the first FSC that has capitalised well
on the increasing customer preference towards low cost travel by utilising
about 70% of its total capacity for budget travellers. We expect the
domestic pax traffic of JAL to grow at a CAGR of 14.3% (12.8% for the
sector) during FY10E-12E due to its strong brand presence and focus on
the budget segment. However, we are concerned about the liquidity
situation of the company due to high debt on its books (debt-to-equity
ratio of 5.7 at the end of Q3FY10). We are initiating coverage on the stock
with REDUCE rating and a price target of Rs 440.
Domestic business
Aviation sector to witness robust pax traffic growth

We believe the Indian aviation sector will witness strong growth over the
next two or three years after the significant contraction reported in FY09
(pax traffic declined by 11% YoY). Growth of pax traffic will be driven by
improved economic environment (GDP expected to grow at a CAGR of
7.5% in FY10E-12E vs. 5.4% in FY09), stable crude oil prices and rapid
We expect the domestic pax traffic of India to growth of demand for low cost travel. As a result, we estimate the
grow at a CAGR of 12.8% during FY10E-12E driven domestic pax traffic will grow at a CAGR of 12.8% during our forecast
by strong macroeconomic growth, increase in
period FY10E-12E (1.5x the GDP-ex agri growth rate).
demand for low cost travel and expectation of
stable crude oil prices In our view, JAL will be the primary beneficiary of the upturn in domestic
pax growth due to its strong market position (market share of 26.9% in Q3
FY10), solid brand name, capacity rationalisation undertaken during the
last few quarters and emphasis on the budget segment. Nearly 1/3 of the
parent company’s capacity shifted to the all-economy brand, JAK by
Q3FY10. As a result, we estimate JAL’s domestic pax traffic will grow at a
CAGR of 14.3% in FY10E-12E with improvement expected in load factor
(80.3% in FY12E vs. 67.1% in FY09). Further, JAL’s revenue passenger
per kilometre (RPKM), a measure of demand, is expected to grow at a
CAGR of 13.3% in FY10E-12E. As a consequence, we expect JAL to
maintain its market share in FY12E (26.9%) despite the expected increase
in competition from the LFCs.
Exhibit 4: Domestic pax traffic (in lakh) – Sector vs. JAL*
600 566 50
502 45
500 444 445 40
395
400 358 35
30
300 252 25
20
200 135 152
119 128 129 111 117 15
100 10
5
0 0
FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Sector - LHS JAL (Domestic) - LHS JAL market share (%) - RHS
Source: Company, ICICIdirect.com Research, * Includes pax numbers for domestic operation of JA and JetLite

Page 15
Exhibit 5: RPKM (in lakh) – JA (domestic) and JetLite
120,000 25
85,650 97,229 20
100,000 84,096 15
80,000 68,840 71,047 10
5
60,000 40,090 0
40,308 43,571
38,560 38,821 -5
40,000 -10
20,000 -15
-20
0 -25
FY08 FY09 FY10E FY11E FY12E
JA RPKM (Dom) - LHS JetLite RPKM - LHS

JA (Dom) YoY% - RHS JetLite YoY% - RHS
Source: Company, ICICIdirect.com Research,* potential upgradation to low cost air travel from premium rail
travel
Introduction of Jet Airways Konnect – a positive move

Introduction of ‘all-economy’ JAK service to With the economy gaining momentum and preference of consumers for
target low cost customers led to increase in low cost travel, we believe the management’s strategy to shift substantial
market share in Q3 FY10 capacity to JAK was a positive move (JAL’s market share increased to
26.9% in Q3FY010 compared to 24.3% in Q1FY10). JAK carried about
15.7 lakh pax, 65.4% of the total pax carried by JA during Q3FY10.
JAK was launched in May 2009 by JA to utilise its domestic business
class capacity that was left idle as a consequence of the economic
slowdown. In a normal economic environment, business class pax
accounts for 50-60% of the total traffic for FSCs in India.
Consolidated domestic load factor to improve to 81.3% in FY12E

JAL’s domestic load factor deteriorated significantly in FY09 (66.9% vs.
70.9% in FY08) as a result of domestic pax contraction (down by 11.1%
YoY in FY09). This was further aggravated by the strong capacity
Load factor will improve on the back of expansion undertaken during FY05-08 (fleet size grew at a CAGR of 18.3%
increasing domestic pax traffic and continuing to 106 aircraft). As a consequence, the management undertook an
capacity rationalisation in our forecast period aggressive capacity rationalisation programme in FY09-10E, including
leasing of idle aircraft to foreign airlines and return of some aircraft to the
lessor. Further, according to the management, there are no plans to
acquire new aircraft for the next 12-18 months.
We believe JAL’s present capacity is more in line with the current
demand. Therefore, we expect a firm load factor in Q4FY10E (the
company reported load factor of 73.6% in January 2010 and 75% in
February 2010). Also, the booking window of March 2010 has indicated a
load factor in the high 70s for domestic operations. We estimate that the
load factor for JA’s domestic operations and JetLite will increase to 78.9%
and 83.7%, respectively, in FY12E driven by the expected growth of
domestic pax traffic.
JA’s load factor increased to 75.4% in Q3FY10 despite an increase in
capacity (13.3% YoY and 17.9% QoQ). This was primarily due to the
introduction of JAK service. The final phase of conversion of about 1/3 of
the capacity to JAK was completed in October 2009.

Page 16
Exhibit 6: ASKM (in lakh) and load factor (%) – JA (domestic) and JetLite
150,000 100
120,000 90
90,000 80
60,000 70
30,000 60
0 50
FY07 FY08 FY09 FY10E FY11E FY12E
JA ASKM (Dom) - LHS JetLite ASKM - LHS
JA (Dom) load factor (%) - RHS JetLite load factor (%) - RHS
Moderate growth expected in pax yields

In our view, the yields of JA, measured by revenue per RPKM, will grow
by 7.6% YoY to Rs 5.8 in FY11E due to its focus on the budget segment
(introduction of JAK service) and deferral of new aircraft addition (leading
to improvement in load factor). Also, we expect capacity addition in the
Focus on low-cost consumers expected to sector to remain muted due to balance sheet concerns of major players
keep yields under pressure (including JAL). The strong growth in pax traffic and low capacity addition
will help JA to improve its yields marginally.
However, JA’s yield is expected to be lower than the high witnessed in
FY09 (Rs 6.8) primarily due to high price elasticity of consumers as the
economy comes out of the slowdown, stable fuel prices, conversion of
aircraft from FSCs to LFCs and increasing competition from pure-play low
cost carriers (SpiceJet, Indigo and Go Air).
Exhibit 7: Annual yields (Rs) – Jet Airways (domestic) and JetLite
8
6.8
5.7 5.8 5.8 5.9
6 5.4
4.6
3.9 3.7 3.8
4 3.4 3.5
Rs.
0
JA - Dom JetLite

Page 17
International Business
Growth momentum of international business to continue
During the last few quarters, the international operations have been more
profitable for JA compared to its domestic operations due to higher load
factor (82.5% for international operations in Q3Y10 vs. 75.4% for
domestic operations) and route rationalisation undertaken by the
company (discontinuing non-profitable international routes such as
We expect high load factor in the international
London-Amritsar, Mumbai-US via Shanghai etc ). As a result, the
segment to continue due to strong capacity international segment contributed 51.3% of the total revenues of the
rationalisation and introduction of new short-haul consolidated business (vs. 43% in FY09) in Q3FY10. Also, all major
routes international routes operated by JA were profitable during the quarter,
with load factors ranging between 80 and 89% (excluding Gulf routes). In
our view, the high load factor of international operations was driven by:
• Strong capacity rationalisation in the international segment

(ASKM reduced by an average of 15.1% YoY during Q1-Q3FY10
vs. 7.2% YoY for domestic operations) by leasing out excess
aircraft
• Introduction of several short-haul routes by JA that led to

improved connectivity with Saarc countries. Some of the
profitable routes that witnessed strong load factor in Q3FY10
were Mumbai–Kathmandu, Mumbai-Dhaka, Delhi–Hong Kong,
and Delhi–Bangkok via Varanasi.
• Improved aircraft utilisation as domestic aircraft were utilised on

international routes during the night time, primarily to Gulf and
Saarc countries
Exhibit 8: JA load factor (%) – Domestic vs. international
100 79.3 81.5

70.9 80.6 78.3 78.7
70.2 66.9 72.7
75 68.0 67.5 68.2
50
25
0
JA (Domestic) JA (International)
The profitability of JA’s international operation is also dependent on its

lower cost of operation (cost per ASKM in domestic operation was higher
by 61.1% in Q3FY10 as compared to international operation). Further, the
fuel costs in India are about 29.7% higher than international destinations,
leading to improved margins for international operations for the company
(According to the management, average fuel prices for domestic

Page 18
operations were about Rs 41.5 per litre in Q3FY10 vs. Rs 32 per litre for
international operations).
Exhibit 9: Cost per ASKM – Domestic vs. international
6 5.3
4.8 4.7
3.9 3.7 3.8
4 3.3
2.7
(Rs.)
2.2 2.5 2.3
2.2
1.9 1.8 1.7
2 1.5
0
FY09 Q1FY10 Q2FY10 Q3FY10
Cost/ASKM - Dom* Cost/ASKM w/o fuel - Dom

Cost/ASKM - Intl# Cost/ASKM w/o fuel - Intl
Source: Company, ICICIdirect.com Research, * Domestic, # International
Exhibit 10: JA EBITDA margin (%) – Domestic vs. international
25 18.3 18.4 18.6

20 14.9 15.7
15
7.7
10 4.0
2.6
5
0
-5 -1.9
-10
-15 -9.7 -10.4
-20 -11.2
-17.0
-25
-30 -24.7
Q1FY09 Q2FY09 Q3FY09 Q4FY09 Q1FY10 Q2FY10 Q3FY10
JA (Domestic) JA (International)
Although we believe the improved economic environment will translate

into higher business and leisure travel in the next few years, the
incremental growth in international traffic will be contingent on JA’s
ability to maintain its market share in major routes such as Saarc, Asean
and Gulf. We are conservative on the growth of international pax traffic
and expect it to grow at a CAGR of 10.5% during FY10E-12E (lower than
the growth of domestic pax traffic).
However, we believe the management’s plan to defer addition of

incremental capacity in the international segment during the next three to
four quarters will contribute to the improved load factor for international
operations. Consequently, we expect the international load factor to
increase to 81.5% in FY12E (compared to 78.9% in domestic operation).

Page 19
Margins
Cost cutting measures bearing fruit
After witnessing a severe margin contraction in FY09 (EBITDA margin of -
6.6% vs. -1.6% in FY08) and slight improvement in H110 (average of
1.7%), JAL reported a strong upturn in margins in Q3FY10 (15.4%). The
margin expansion was driven by:
• Higher load factor in domestic operations (75.4% in Q3FY10 vs.
EBITDA margins will improve to 12.3% in FY12E
62.4% in Q3FY09) as well as international operations (82.5% in
due to continuance of cost saving initiatives
and expectation of a stable fuel price Q3FY10 vs. 67.8% in Q3FY09)
environment • Lower crude oil prices (average price of US$76.9 per barrel in
Q3FY10) compared to the highs witnessed in H109 (average price
of US$121 per barrel)
• Staff rationalisation leading to lower employee costs; headcount
reduced to 11,700 at the end December 2009 as compared to
13,400 in January 2009
• Increased synergy between JA and JetLite employees leading to
further cost savings
According to the management, cost per ASKM is expected to decrease by
5-10% YoY during the next few quarters. Accordingly, we estimate that
the EBITDA margin will expand to 8.4% in FY10E and further to 9.0% in
FY11E and 12.3% in FY12E. Margin expansions will be driven by stable jet
fuel prices, continuance of cost saving initiatives and higher load factor.
Exhibit 11: JAL EBITDA margin (%)
15 12.3
8.4 9.0
10
5.1
5
0
-1.6
-5
-6.6
-10
EBITDA Margin - JAL
Stable crude oil prices to benefit JAL

In our view, JAL will benefit from the expected stability of crude oil prices
primarily due to the conversion of majority of its capacity to JAK. Budget
JAK service to benefit from stable fuel price carriers are able to price their tickets more competitively in a low fuel
during FY10E-12E price environment. Our expectation of low crude oil prices are further
supported by the Energy International Administration (EIA) of US, that
forecasts crude oil prices at an average of US$70.1 per barrel in FY10E,
US$80.3 per barrel in FY11E and US$83.9 per barrel in FY12E.
Accordingly, we forecast that JAL’s cost per ASKM will remain lower in
our forecast period (Rs 3.7 in FY12E) as compared to the high witnessed
in FY09 (Rs 4.0)

Page 20
Exhibit 12: Consolidated cost per ASKM (Rs) – with fuel and without fuel
5
4.0
4 3.7 3.6 3.7
3.5
3.0
3 2.4
2.4 2.4 2.4 2.4
Rs.
2.0
2
0
Cost/ASKM - LHS Cost/ASKM (w/o Fuel) - LHS
Fuel costs account for about 30-35% of the total operating costs of JAL,
which makes the company’s earnings highly susceptible to the movement
in fuel prices. The sensitivity chart below presents the risk of fuel price
movement to JAL’s bottomline (we have assumed average jet fuel prices
of 50.2 cents per litre (CEP), 59.7 CEP, 63.1 CEP in FY10E, FY11E and
FY12E, respectively, based on our crude oil forecasts).
Exhibit 13: Sensitivity of JAL’s EPS with jet fuel prices

Change in average jet fuel prices (%) EPS (Rs)
FY10E FY11E EPS - FY12E
10 -64.2 -41.2 19.2
Base case -53.6 2.9 65.6
-10 -42.9 47.0 112.0
Source: EIA, ICICIdirect.com Research

Page 21
Balance sheet concerns
Balance sheet severely stretched

JA’s balance sheet is severely stretched with total borrowings of Rs
14,708 crore at the end of Q3FY10 (debt-to-equity ratio of 5.7x). As a
result, we believe the bottomline will continue to remain under pressure
during FY10E due to high interest expenses (interest coverage ratio of -
0.1% in FY10E and 0.3% in FY11E), despite an improvement in operating
Despite an improvement in operational results, results in Q3FY10.
net profits will remain negative in FY10E due to
high interest costs
JAL has received permission from the government to raise equity worth
~Rs 1,860 crore (US$400 million) through the QIP route. Although, we
have assumed that the company will be able to raise ~Rs 930 crore
(US$200 million) in the next three or four months (as indicated by the
management), the amount is still less than the payment obligation of
about Rs 1,500 crore (outstanding creditors, loans for aircraft and
payment obligation due to legal dispute with Sahara over JetLite) at the
end of Q3FY10.
JAL is also exploring the sale and lease back option for its assets
(primarily aircraft) to use the proceeds to pay down its debt. However, we
are cautious on this front as the company cannot sell JetLite assets
without permission from the court (the JAL-Air Sahara dispute is sub
judice at present).
Exhibit 14: Debt-to-equity ratio – Consolidated
8 7.6
5.7
6 5.3
4
x
2.7 2.9
0
FY07 FY08 FY09 FY10E FY11E
Debt to Equity

Page 22
Risks and Concerns

Rise in fuel prices
Since fuel costs constitute about 30-35% of the total operating costs of
the company, a significant rise in fuel prices will negatively impact the
profitability. Further, as airlines are forced to raise ticket prices in a rising
fuel price environment, a significant rise in fuel prices will lead to a
slowdown in pax traffic.
Delay in recovery of domestic economy from slowdown

The pax traffic in India is highly sensitive to the performance of the real
economy. With the government talking about the withdrawal of the fiscal
stimulus in order to bring down the high fiscal deficit in India, the full
recovery of the domestic economy may be delayed, leading to a decline
in pax traffic as passenger will shift to cheaper modes of transport such as
railways.
Strong capacity addition by LFCs may lead to over-supply situation

Pure-play LFCs such as SpiceJet, Indigo and Go air are planning to
increase their fleet size during the period FY10-12. In case of a less-than-
expected recovery in pax traffic, there is fair chance of an over-supply
situation in the sector. This will negatively impact the load factor.
Inability to raise money in international market

A slower than expected recovery in the international market may derail
JAL’s plan to raise ~Rs 1,860 crore through the QIP route. JAL wants to
raise fresh capital of ~Rs 930 crore (US$200 million) within three to four
months in order to partially payback its debt, which stood at Rs 14,708
crore at the end of Q3FY10.

Page 23
Financials
Consolidated revenue growth to pick-up from Q4FY10E
We expect the consolidated revenue sales of JAL to grow at 23.8% YoY
to Rs 3,428 crore in Q4FY10 after witnessing an average de-growth of -
15.6% YoY during the past three quarters. The growth is expected to be
driven by the revival of domestic as well as international pax traffic on the
back of a strong macroeconomic performance and stable fuel prices. With
an improvement in yields, both domestic and international, we expect the
topline of JAL to grow at a CAGR of 13.7% during FY10E-12E (as
compared to 32.3% during FY06-09).
The international business, which contributed 51.3% to the consolidated
revenues in Q3FY10, is expected to maintain its share in the topline driven
by the increased focus of the company to improve its share on
international routes such as Asean, Saarc and Gulf routes.
Exhibit 15: Consolidated revenues estimated to grow at a CAGR of 13.7% during FY10E-12E
20000 80
15,663
16000 13,078 13,852 60
12,121
12000 10,300
9,054 40
Rs. crore
8000
20
4000
0 0
-4000 -20
JAL - LHS Growth YoY (%) - RHS

Page 24
Positive EBITDA expected in FY10E

After reporting negative EBITDA in the last two years (due to high fuel
prices and a slowdown in the domestic market), we expect JAL to report
a positive EBITDA of Rs 1,012 crore in FY10E on the back of the strong
performance in Q3FY10 (EBITDA of Rs 510 crore). With the revival of the
demand environment, ongoing cost cutting measures and stable fuel
prices, we expect JAL’s EBITDA to grow at a CAGR of 38% to Rs 1,944
crore during FY10E-12E.
Exhibit 16: Consolidated EBITDA to improve during FY10E-12E
2500 300
1,928
1875
1,244 50
Rs. crore
1250 1,012
625 362 -200
0
-450
-625 (163)
-1250 (859) -700

EBITDA - LHS Growth YoY% - RHS
Margin to recover slowly

In our view, the EBITDA margin of the company will improve to 12.3% in
FY12E on the back of improved domestic and international operations. In
Q3FY10, the international operations of the company reported higher
EBITDA margin (18.6%) as compared to domestic operations (15.7%).
This was primarily due to high load factor, leading to better realisations.
Although we believe the growing domestic demand, stable fuel prices,
and low interest costs (due to slowdown in capacity addition) will help the
company to improve its bottomline, the margin will still be lower than the
high witnessed in FY05-06.
Exhibit 17: Slow recovery in margin during FY10E-12E
30 27.9
24
16.4
18
12.3
12 9.0 8.0 8.4 9.0
(%)
5.1 4.4
6
0.4 0.2
0
-6 -1.6
-4.7
-6.4 -6.6 -7.4
-12
FY05 FY06 FY07 FY08 FY09 FY10E FY11E FY12E
EBITDA Margin PAT Margin

Page 25
Return ratio to gain in FY11E and FY12E

JAL operates about 50% of its aircraft on a lease basis while the other half
is through a sale and lease back basis. This model got severely impacted
in the slowdown (FY09 and H1FY10) due to high fixed costs. However,
due to high operating leverage, we expect this to drive a big upturn in
returns on the back of expected improvement in the pax traffic. Further,
the deferral of capacity expansion by the company is also expected to
lower the interest costs for the company, leading to an improvement in
return ratios in our forecast period.
Exhibit 18: RoCE (%) and RONW (%)

30
23.7
20
10 1.2
0.2
4.7
0
-7.8 1.4
-10
-10.0
-20
-23.9
-30 -20.5
-30.3
-40
ROCE ROE

Page 26
Valuations
JAL is the largest domestic airline operator in India with a market share of
26.9% in Q3FY10. We believe the company will be the prime beneficiary
of the recent upturn of domestic pax traffic (28% YoY in Q3FY10) due to
its strong market position, focus on the budget segment and capacity
rationalisation undertaken in FY09. As the economy comes out of the
slowdown, we expect increased demand for JA’s ‘all-economy’ service
JAK, contributing to higher load factors. Further, the margin is expected
to improve driven by the expected increase in load factor and stable
JAL valued at 1.3x FY11E EV/Sales, at a
crude oil prices.
premium to its Asian peers but valuation
concern remains
Key risks include slowdown of economic growth and a steeper-than-
expected increase in crude oil prices, leading to lower load factor and
consequently profitability. Further, a significant debt on the balance sheet
(Rs 14,708 crore in Q3FY10 and debt-to-equity ratio of 5.7) poses
additional risk to our earning forecasts as a contraction in operating
results may lead to worsening of the liquidity situation for the company.
At the CMP of Rs 465, the stock is currently trading at 1.3x FY11E EV/sales
and 13.6x its EV/EBITDA. The rebound in tourist traffic has improved the
outlook of the company. However, we continue to remain cautious on the
liquidity situation of the company as the fresh capital expected to be
raised by the management (~Rs 930 crore/US$200 million) falls short of
the total payment obligation (~Rs 1,500 crore/US$330 million) of the
company at the end of Q4FY10. Hence, we have valued JAL at a FY11E
EV/EBITDA of 12.8x, at a discount to its current valuation multiple,
computing a target price of Rs 444. We are initiating coverage on the
stock with a REDUCE rating, downside risk of 4.5%.
Exhibit 19: Asean peer’s valuation matrix

P/E EV/Revenue EV/EBITDA P/BV
TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E
Jet Airways NA NA 162.6x 1.4x 1.5x 1.3x NA 17.5x 13.6x 2.8x 2.0x 1.9x
Air China NA 37.9x 43.6x 5.9x 5.8x 5.0x 77.6x 28.9x 22.4x 7.2x 5.9x 5.2x
China Eastern Airlines Co. NA 117.0x 52.2x 1.6x 1.4x 1.1x NA 15.7x 7.4x 2.7x NA 18.5x
China Southern Airlines Co. NA 120.0x 41.7x 1.5x 1.4x 1.3x NA 11.0x 7.4x 6.5x 5.1x 4.4x
EVA Airways NA NA 17.5x 1.4x 1.6x 1.3x 71.8x 12.2x 10.3x NA 1.5x 1.4x
Cathay Pacific NA 22.1x 24.2x 1.1x 1.5x 1.3x NA 10.1x 8.8x 1.6x 1.5x 1.5x
Korean Air NA 127.2x 15.7x 1.2x 1.3x 1.2x 19.5x 12.2x 8.9x 2.0x 1.6x 1.5x
Malaysia Airlines NA NA NA 0.2x 0.3x 0.3x NA NA 7.6x NA 0.9x 1.0x
Singapore Airlines 17.3x 774.0x 20.9x 1.0x 1.4x 1.2x 6.2x 9.3x 6.0x 1.3x 1.4x 1.3x
Thai Airways International NA 19.7x 13.0x 0.9x 1.0x 1.0x 34.6x 6.4x 5.7x 0.9x 0.9x 0.9x
Median 17.3x 117.0x 22.5x 1.3x 1.4x 1.2x 34.6x 12.2x 8.2x 2.3x 1.5x 1.5x
Mean 17.3x 174.0x 28.6x 1.6x 1.7x 1.5x 42.0x 13.7x 9.8x 3.1x 2.3x 3.8x
Adjusted Mean** 17.3x 84.8x 27.3x 1.3x 1.4x 1.2x 42.0x 12.6x 8.7x 2.8x 2.0x 2.3x

Page 27
Table and Ratios

Profit and loss statement
(Rs Crore)
(Year-end March) FY08 FY09 FY10E FY11E FY12E
Net Sales 10,246 13,078 12,121 13,852 15,663
% Growth 45.2 27.6 -7.3 14.3 13.1
Fuel Expenses 4,070 5,854 3,900 4,682 4,925

% of Sales 39.7 44.8 32.2 33.8 31.4
Personal Cost 1,389 1,584 1,373 1,407 1,520
% of Sales 13.6 12.1 11.3 10.2 9.7
Other Operating Expenses 4,950 6,499 5,836 6,519 7,290
% of Sales 48.3 49.7 48.1 47.1 46.5
Total Expenditure 10,409 13,937 11,109 12,608 13,736
% Growth 55.5 33.9 -20.3 13.5 8.9
Operating Profit -163 -859 1,012 1,244 1,928

% Growth NA NA LP 22.9 54.9
Other Income 0 0 0 0 0
Depreciation 802 902 976 1,008 1,167
EBIT -965 -1,761 36 236 760
% Growth NA NA 102.0 -560.7 222.1
Interest 522 802 946 690 613

Non-operation income 676 1,536 343 485 548
Profit before Tax -812 -1,027 -568 31 696
% Growth NA NA NA LP NA
Taxation -158 -66 0 0 0
Net Profit -654 -961 -568 31 696

Page 28
Balance Sheet
(Rs Crore)
Liabilities
Equity Share Capital 86 86 106 106 106
Reserves & Surplus 4,065 2,111 2,457 2,487 3,183
Secured Loans 1,753 5,036 3,136 2,136 1,136
Unsecured Loans 10,452 11,598 11,584 11,625 11,677
Current Liab. & Prov. 4,523 4,113 5,103 5,130 5,222
Others 573 275 275 275 275
Total Liabilities 21,452 23,219 22,661 21,760 21,600
Assets
Gross Block 16,669 18,845 18,845 18,845 18,845
Less: Acc. Depreciation 2,556 2,550 3,527 4,535 5,702
Net Block 14,113 16,295 15,318 14,310 13,143
Capital WIP 1,303 657 657 657 657
Net Fixed Assets 15,415 16,952 15,975 14,967 13,800
Loans & Advances 1,192 1,324 1,389 1,556 1,764

Cash 958 1,466 2,053 1,880 2,515
Trade Receivables 1,399 808 847 949 1,076
Inventory 604 696 425 435 472
Investments 10 100 100 100 100
Total Current Assets 4,164 4,394 4,813 4,921 5,927
Others - Goodwill 1,872 1,872 1,872 1,872 1,872

Total Assets 21,452 23,219 22,661 21,760 21,600

Page 29
Cash Flow statement

(Rs Crore)
Profit before Tax -812 -1,027 -568 31 696
Depreciation 802 902 976 1,008 1,167
Other Non Cash expenses 2,567 -838 0 0 0
Diect Tax Paid 13 15 0 0 0
Interest Income 0 0 0 0 0
Others 1,683 -294 -633 -205 -64
Cash Flow before WC Changes 862 -684 1,041 1,244 1,928
Net Increase in Current Liabilities 2,200 -631 990 27 92

Net Increase in Current Assets 928 -367 -168 280 371
Cash Flow after WC Changes 2,134 -948 2,200 991 1,648
Purchase of Fixed Assets -8,263 -1,531 0 0 0

(Inc.)/Dec. in Investment 804 281 313 485 548
CF from Investing -7,459 -1,250 313 485 548
Inc/(Dec) in Loan Funds 6,149 4,429 -1,913 -959 -949

Inc/(Dec) in Net Worth 0 0 934 0 0
Others -522 -802 -946 -690 -613
Casf Flow from Financing Actv 5,627 3,626 -1,926 -1,649 -1,561
Op. Cash & Cash equivalents 1,097 958 1,466 2,053 1,880
Cl. Cash & Cash equivalents 958 1,466 2,053 1,880 2,515

Page 30
Ratios

Per share data (Rs)
EPS -75.7 -111.4 -53.6 2.9 65.6
Cash EPS 17.1 -6.9 38.5 98.0 175.7
Book Value 480.8 254.5 241.6 244.5 310.1
Operating Profit Per Share -18.9 -99.5 95.4 117.3 181.7
Operating Ratios
Operating Margin -1.6 -6.6 8.4 9.0 12.3
Net Profit Margin -6.4 -7.4 -4.7 0.2 4.4
Return Ratios
RoNW -20.5 -30.3 -23.9 1.2 23.7
ROCE -7.8 -10.0 0.2 1.4 4.7
Valuation Ratios
EV/EBITDA -94.1 -22.4 17.5 13.6 7.9
PE -6.2 -4.2 -8.8 162.6 7.2
EV/Sales 1.5 1.5 1.5 1.2 1.0
Sales to Equity 2.5 6.0 4.7 5.3 4.8
Market Cap to Sales 0.4 0.3 0.3 0.3 0.3
Price to Book Value 1.0 1.9 2.0 1.9 1.5
Turnover Ratios
Fixed Asset Turnover Ratio 549.2 473.1 481.1 394.4 321.6
Debtor turnover 49.8 22.5 25.5 25.0 25.1
Creditor turnover 72.5 49.5 32.6 29.2 28.0
Cash to abs. Liab. 0.2 0.4 0.4 0.4 0.5
Solvency Ratios
Debt/Equity 2.9 7.6 5.7 5.3 3.9
Current Ratio 0.9 1.1 0.9 1.0 1.1
Quick ratio 0.8 0.9 0.9 0.9 1.0

Page 31
Initiating Coverage
March 26, 2010
Rating Matrix Spicejet Ltd (MODLUF)
Rating : Strong Buy
Target : Rs 72 Rs 58.0
Target Period
Potential Upside
:
:
12 months
24 %
Riding high on improving macros…
SpiceJet is India’s second-largest low fare carrier (LFC) with a market
YoY Growth (%) share of 12.8% (Q3FY10). The company has grown faster than the sector
FY09 FY10E FY11E FY12E in April-December 2009 (pax traffic growth of 46.3% YoY vs. 11.5% for
Net Sales 30.5 30.3 21.8 19.9 the sector) due to the preference of consumers towards low cost travel
EBITDA 66.3 -117.7 192.5 54.9 and higher capacity (average growth of 28.2% YoY). We believe the
Net Profit 159.4 -131.2 131.6 33.0 company will benefit in FY10-12E from the strong revival in domestic
EPS 159.0 -131.2 83.1 33.0 pax-traffic and stable crude oil prices. We are initiating coverage on the
stock with a STRONG BUY rating with a target price of Rs 72.
Stock Metrics
Strong topline growth in FY10E-12E
Bloomberg Code SJET:IN
Reuters Code SPJT:BO We expect SpiceJet’s topline to grow strongly in FY10E-12E (CAGR of
Face value (Rs) 10.0 20.8% to Rs 3,215.8 crore) driven by the preference of consumers
Promoters Holding 12.9 towards low cost travel as the economy comes out of the slowdown and
Market cap (Rs crore) 1,397.9 higher capacity (fleet size of 24 in FY12E vs. 19 in FY09). Consequently,
52 week H/L 64.4/13.1
SpiceJet’s market share is estimated to increase to 13.9% in FY12E (from
Sensex 17,558.0
12.8% in Q3FY10). The recent upward revision of the FY10 GDP growth
Average volumes 3,774,376.5
forecast by RBI (7.5% vs. 6% earlier) is likely to boost consumer and
business confidence, leading to robust growth of the sector’s pax traffic
Valuation matrix (12.8% CAGR in FY10-12E).
FY09 FY10E FY11E FY12E
Target PE -5.2 16.9 9.2 6.9 Margin expansion imminent
EV/EBITDA -4.7 25.1 7.4 5.4
EV/Sales 1.2 0.8 0.8 0.6
Driven by higher load factor (75.7% in FY10E vs. 66.1% in FY09) and
Price/BV -4.1 -5.4 27.3 5.5
stable crude oil prices (average of US$70.1 per barrel in FY10E vs.
US$121 per barrel in H1FY09), we expect SpiceJet to turn profitable in
FY10E (EBITDA margin of 3.4% vs. -24.8% in FY09) for the first time since
Stock Price movement (Stock vs. Nifty) it commenced operations. The operational performance improved
80 20,000 significantly in 9MFY10 (EBITDA margin of 0.7% vs. -24.8% in FY09). This
is likely to contribute to positive PAT margins in FY10E (lower interest
60 15,000 expenses of Rs 8.6 crore vs. Rs 16 crore in FY09).
40 10,000
20 5,000 Valuations
At the CMP of Rs 58.0, the stock is trading at 7.4x FY11E EV/EBITDA
0 0
against its global peer’s average mean FY11E EV/EBITDA of 8.8x. We
Jan-09
Jan-10
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Mar-10
believe the stock is currently undervalued considering its improving

operational performance on account of the improving macroeconomic
outlook. The company has a sound financial position and is also foraying
Prices - LHS Sensex - RHS
into the profitable international market. As a result, we value the stock at
Analyst’s name 9.0x FY11E EV/EBITDA (i.e. at a premium to its global players). We are
initiating coverage on the stock with target price of Rs 72 and a STRONG
Rashesh Shah BUY rating, offering an upside of 24%.
rashes.shah@icicisecurities.com
Exhibit 1: Financial Summary
Rs. Crore FY08 FY09 FY10E FY11E FY12E
Net Sales 1,295 1,689 2,202 2,681 3,216
EBITDA -252 -419 74 216 335
Net Profit -132 -340 105 244 324
EPS (Rs) -5.5 -14.1 4.4 8.0 10.6
EV/EBITDA (x) -5.3 -3.8 20.0 7.4 5.4
RoCE (%) -44.2 -137.8 62.6 71.0 54.7
RoNW(%) -124.6 169.6 -27.8 -198.1 132.7

Spicejet Ltd (MODLUF)
Company Background
SpiceJet commenced its operation in May 2005 as a budget airline with a
strong focus on the domestic market. The company has emerged as the
second largest LFC after Indigo, with a market share of 12.8% at the end
of Q3FY10. The company operates 19 aircraft, which fly to 18 different
cities in India.
SpiceJet is planning to add five aircraft by 2012 (24 aircraft) in order to
boost its domestic capacity and start international operations. The airline
has recently received permission from the government to fly on
international routes.
Spice Jet’s revenues witnessed a growth of 30.5% YoY to Rs 1,689 crore
in FY09 despite the significant contraction witnessed in the pax traffic
(growth of 0.12% in FY09 vs. 57.6% in FY08). The strong growth in
SpiceJet is planning to add five aircraft by 2012 topline was primarily due to high fuel prices, leading to high yields during
(24 aircraft) in order to boost its domestic capacity the year. During FY06-08, SpiceJet witnessed robust revenue growth
and start international operations. The airline has (CAGR of 75.7%) driven by booming pax traffic in the domestic market.
recently received permission from the government
SpiceJet is listed on the BSE and is headquartered in Gurgaon, Haryana.
to fly on international routes.
Exhibit 2: Evolution of SpiceJet
2008 – WL Ross & Co
as new investor and
exit of Goldman
2005– Renamed Sachs from FCCB
SpiceJet, started investment
operation in
domestic market
1996 – Ceased
operations after
1984 – Incorporated renaming again to
ModiLuft Ltd 2006– Raised US$80
as Genius Leasing
million through FCCBs to
Finance Investment
Istithmar and Goldman
Company, promoted
Sachs
by Modi Group 2000– Started
companies operations as Royal
Airways
1993 – Renamed
as MG Express,
started providing
air transportation
Exhibit 3: Domestic pax traffic (in lakh) and market share (%)
18 12.8 13.0 12.8 15

12.2
10.1 10.3 10.5 10.5
12 8.2 8.2 8.1 10
15.5
13.6 13.6
6 11.7 11.6 12.0 11.9 5
9.1 10.0
8.6
7.2
0 0
Q1FY08
Q2FY08
Q3FY08
Q4FY08
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Pax carried (In lakh) - LHS Market Share (%) - RHS

Page 33
Investment Rationale
SpiceJet is the second-largest LFC operating in India with a market share
of 12.8% in Q3FY10. We are positive on the growth prospects of the
company driven by the following rationale:
• Strong macroeconomic growth (real GDP expected to grow at
CAGR of 7.5% during FY10E-12E) to boost domestic pax traffic
Strong macroeconomic growth and stable • Low crude oil prices (average of US$78.1 per barrel during FY10E-
crude oil prices to improve the domestic 12E vs. US$121 per barrel in H109) will benefit LFCs
pax-traffic
• Rising income levels, with GDP per capita expected to grow at a
CAGR of 6% during FY10E-12E to Rs 36,876, will push premium
rail travellers towards low-cost air travel
• The improving operational performance of SpiceJet coupled with
rising brand presence will improve the market share (13.9% in
Q4FY12E)
Pax traffic growth in India is highly dependent on macroeconomic
performance and fuel price movement. A premature withdrawal of the
fiscal stimulus by the government and a higher-than-expected rise in fuel
prices can impede the growth potential of the company.
Potential upgradation of premium rail pax to boost LFC

Potential upgradation of about one-third of We believe low cost airlines (SpiceJet, Indigo, Go Air, Paramount and
premium rail traveller (primarily AC class JetLite) will be the primary beneficiaries of the potential upgradation of
travellers) can increase air-pax traffic premium rail travellers due to improving air traffic infrastructure and rising
penetration to 5.3% in FY10E income levels in the country. In our view, the potential shift of about one-
third of the premium rail travellers (about 50,000 passengers daily) can
increase the air-pax traffic penetration to 5.3% in FY10E (vs. 3.8% in
FY10E without the potential upgradation).
Exhibit 4: Potential increase in domestic pax traffic
80 8
60 6
In Lakh
40 4
20 2
0 0
Pax traffic (Normal) - LHS Pax traffic (Pot Upgrad*) - RHS

Penetration (Normal %) - RHS Penetration (Pot upgrd* %) - RHS
Source: Company, ICICIdirect.com Research,* potential upgradation to low cost air travel from premium rail
travel
In our forecasts, we have assumed that railway’s premium travellers

(constituting passengers travelling in the higher upper class) will grow at
a CAGR of 12.5% during FY09-12E (vs. 12.2% during FY07-09). According
to our analysis, the passengers who travel in AC I and AC II (constituting
about one-third of the total AC travellers) and pay an average ticket price
of Rs 2,350, have a greater chance of choosing low-cost air travel as
compared to AC III passengers (The current AC III passengers are
expected to upgrade themselves to AC I and AC II with rising income
levels).

Page 34
Exhibit 5: Railways ticket prices* on Delhi-Mumbai route
Delhi - Mumbai Class 1A Class 2A Class 3A

Mumbai Rajdhani 3,305 1,975 1,495
Golden Temple 2,586 1,532 1,120
Average Ticket Prices 2,946 1,754 1,308
Source: Indian Railways, ICICIdirect.com Research, * Air ticket prices for travel on March 19, 2010
Exhibit 6: SpiceJet ticket prices*

From Destination Avg Ticket Prices
New Delhi Mumbai 5,474
New Delhi Ahmedabad 4,229
Average ticket prices 4,852
Source: Indian Railways, ICICIDirect.com Research,* Air ticket prices for travel on March 19, 2010
However, any potential upgrade of premium rail traffic is constrained by a

significant increase in crude oil prices as fuel expenses account for about
45-50% of the total operating expenses for LFCs. A rising fuel price
environment forces LFCs to increase their ticket prices at a higher rate
compared to full service carriers (FSCs), leading to reduced gap between
the ticket prices of these carriers. Further, a slower-than-expected
recovery of economic growth can force premium rail travellers to fall back
on the cheaper railway services.
Well positioned to increase market share

SpiceJet is the second-largest LFC in India with a market share of 12.8%
SpiceJet’s market share is expected to
increase to 13.9% in Q4FY12E vs. 12.8% in at the end of Q3FY10 (Indigo is the only pure-play LFC ahead of SpiceJet
Q3FY10 with a market share of 14.4% in Q3FY10). The growing preference of
passenger towards low cost travel, as the economy comes out of the
slowdown, was evident from the fact that SpiceJet witnessed a robust
pax traffic growth of 46.3% YoY during April-December 2009 (vs. 11.5%
for the sector and -0.4% for market leader Jet Airways{JAL}). Growth was
driven by:
• Lower ticket prices for SpiceJet during April-December 2009
(average passenger yields of Rs 2.97 vs. Rs 3.44 for JAL)
• Decline of 24.1% YoY in fuel expenses during April-December
2009 due to lower crude oil prices (average crude oil prices of
US$68.2 per barrel vs. US$100.1 per barrel during April-December
2008)
• Increased aircraft utilisation as number of flights per day per
aircraft increased to 6.4 in H1FY10 from 5.3 in FY09
• Capacity, as measured by available seat per kilometre (ASKM),
grew at a monthly average of 28.4% YoY during April-December
2009 vs. 26.8% YoY during April-December 20008
• Improvement in load factor to an average of 75.8% during
9MFY10 (vs. 63.4% during 9MFY09)
We expect the market share of SpiceJet to grow to 13.9% in Q4FY12E
driven by strong pax traffic growth (CAGR of 17.5% during FY10E-12E vs.
12.8% for the sector), improvement in capacity due to increase in fleet

Page 35
size (24 in FY12E vs. 19 in FY09) and stable fuel prices (US$80.3 per barrel
in FY11E and US$83.9 per barrel in FY12E).
Exhibit 7: Domestic pax traffic (in lakh)
30 120
22
23 20 80
19 18 19 18
15 15 16 16
14 14
15 12 12 40
10
7
8 0
0 -40
Q1FY09
Q2FY09
Q3FY09
Q4FY09
Q1FY10
Q2FY10
Q3FY10
Q4FY10
Q1FY11
Q2FY11
Q3FY11
Q4FY11
Q1FY12
Q2FY12
Q3FY12
Q4FY12
Passenger Traffic (LHS) Growth YoY% (RHS)
SpiceJet leads in aircraft utilisation

High aircraft utilisation rate of 12 hours by SpiceJet maintains a high aircraft utilisation rate of 12 hours primarily to
SpiceJet translates into one additional flight a spread its fixed costs (such as lease rentals, etc.). This translates into one
day additional flight a day. As a result, the company is able to lower its cost of
operation, which translates into lower ticket prices for customers.
Load factor to improve despite capacity expansion

We estimate that SpiceJet’s capacity will grow at a CAGR of 15.4% during
FY10E-12E driven by the induction of five new aircraft in its fleet (fleet
strength of 24 in FY12E vs. 19 in FY09). According to the management,
the fleet expansion is primarily aimed at boosting the airline’s presence in
profitable domestic routes and the commencement of international
operations from FY11E.
We expect SpiceJet’s load factor to improve (79.8% in FY12E vs. 66.1% in
SpiceJet’s load factor will improve to 79.8% in FY09) despite the capacity expansion plans of the company. Improvement
FY12E (vs. 66.1% in FY09) despite capacity in load factors will be driven by the revival of domestic pax traffic with a
expansion plans strong preference towards low cost travel; SpiceJet witnessed a robust
load factor of 78.9% in Q3FY10 (vs. 65.5% in Q3FY09) despite 28.2% YoY
growth in capacity addition. Further, load factor will be supported by the
strong capacity rationalisation witnessed in the sector (domestic capacity
declined by 2.4% in FY09 vs. growth of 24.4% in FY08). JAL and
Kingfisher (with a combined domestic capacity of ~ 46.3% in FY09) have
shelved their capacity expansion plans for the next 12-18 months, leading
us to believe that supply will be well aligned with the demand situation in
our forecast period.

Page 36
Exhibit 8: ASKM (in lakh) and load factors (%)
160,000 100
118,376
120,000 75
101,259
88,860
72,080
80,000 50
60,130
35,320
40,000 25
0 0
ASKM - (LHS) Load Factor (%) - (RHS)
Yields to remain under pressure despite improvement in outlook

In our view, SpiceJet’s yields will remain under pressure (Rs 3.2 in FY12E)
primarily due to increasing competition in the budget segment. Major
FSCs such as JAL and Kingfisher have converted a majority of their
capacities into low cost in order to improve their load factors. JAL has
started a new service, Jet Airways Konnect (JAK), by converting about
1/3rd of the fleet size (excluding JetLite) into low-cost carriers.
Further, we expect crude oil prices to remain lower during our forecast
Marginal increase in yields due to increasing period FY10E-12E (average of US$82.1 per barrel) as compared to the
competition from FSCs high witnessed in H1FY09 (average of US$121 per barrel). This will keep
fuel surcharge at a comparatively low level, leading to stable yields for the
company. In our view, the low fuel price environment will help SpiceJet
to increase its focus on load factors while maintaining low-ticket prices
during our forecast period.
Exhibit 9: Pax Yields (Revenue per RPKM)
4
3.3 3.1 3.2
3.0
3 2.8
2.2
2
0
Pax Yields (Rs.)

Page 37
EBITDA margin to turn positive from FY11E

SpiceJet witnessed a robust EBITDA margin of 15.9% in Q3FY10 after
reporting an average EBITDA margin of -10.4% in H1FY10. The margin
improvement in Q3FY10 was driven by:
• Robust topline growth of 35.9% YoY to Rs 642.1 crore in Q3FY10
Strong growth in net sales and lower fuel • Decline in crude oil prices during the last three quarters (average
expenses to improve EBITDA margins price of US$68 per barrel vs. US$121 per barrel witnessed in H109
• Significant improvement in load factors (78.9% in Q3FY10 vs.
65.5% in Q3FY09)
In our view, SpiceJet’s operating performance will remain strong during
our forecast period primarily due to strong topline growth (CAGR of
20.8% during FY10E-12E) and expectation of lower crude oil prices (share
of fuel expenses in total operating expenses is expected to decline to
39.4% in FY12E vs. 44.8% in FY09). As a consequence, we expect the
EBITDA margin to improve to 8.1% in FY11E and 10.4% in FY12E.
Further, the decline in fuel expenses during our forecast period is
expected to lower the cost per ASKM of SpiceJet to Rs 2.4 in FY12E (Rs
2.9 in FY09).
Exhibit 10: EBITDA margin (%)
20
10.4
8.1
10
3.4
0
-10
-20
-19.5
-30 -25.0 -24.8
EBITDA Margin (%)
Exhibit 11: Cost per ASKM (Rs) – with and without fuel
4 100
3 2.9 75
2.6
2.4 2.4 2.4
1.4 1.6 1.5 1.5
2 50
Rs.
1.5
1 25
0 0
Cost per ASKM Cost per ASKM - w/o Fuel

BE* load factor (%) BE* load factor (%) - w/o fuel
Source: Company, ICICIdirect.com Research,*Breakeven load factor

Page 38
Although we have forecasted lower crude oil prices during FY10E-12E

(average prices of US$70.1 per barrel in FY10E, US$80.3 per barrel in
FY11E and US$83.9 per barrel in FY12E), a higher-than-expected rise in
crude oil prices poses a significant threat to the operation of SpiceJet.
LFCs are more vulnerable to a rise in crude oil prices due to higher share
of fuel expenses in total operating expenses as compared to FSCs.
To capture the impact of rising crude oil on the company’s bottomline, we
have carried out a sensitivity analysis of the movement in crude oil prices
on SpiceJet’s EPS. We have assumed average jet fuel prices of 50.2 cents
per litre (CEP), 59.7 CEP, 63.1 CEP in FY10E, FY11E and FY12E,
respectively, based on our crude oil forecasts.
Exhibit 12: Sensitivity of SpiceJet’s EPS with jet fuel prices
Change in average jet fuel prices (%) Change in EPS (Rs)
FY10E FY11E FY12E
10 3.5 4.8 7.2
0 4.4 8.0 10.6
-10 5.3 11.2 14.1
Source: EIA, ICICIdirect.com Research
FCCBs conversion to strengthen balance sheet

SpiceJet has foreign currency convertible bonds (FCCBs) worth US$78
million on its books due for redemption in December ‘10. Istithmar, a
FCCB worth US$78 million due for redemption UAE-based investment house, holds FCCBs worth US$12 million while the
in December 2010 rest is held by WL Ross & Co, a US-based investment company. SpiceJet
has also issued warrants worth Rs 606.1 million (convertible to equity
shares at Rs 25 per share) with a conversion date in June ‘10.
According to our analysis, we believe SpiceJet will proceed with full
conversion of warrants and about 40% of FCCBs conversion into equity
shares to increase its foreign shareholding to 48.4% in FY11E (when these
warrants and FCCBs are due for redemption) from 27.5% at present.
Foreign shareholding decreased to 27.5% in February ‘09 after Istithmar
sold about 13.4% of its equity stake in SpiceJet to domestic investors in
India. In our view, the full conversion of warrants and part-conversion of
FCCBs will keep the foreign shareholding within the prescribed limit of
49% as mandated by the government.
We estimate that the conversion of FCCBs will help SpiceJet to reduce its
debt (Rs 348.7 crore in FY12E from Rs 488.8 crore in FY09). This, in turn,
will strengthen its balance sheet (positive net worth of Rs 81.4 crore in
FY11E vs. negative net worth of Rs 429.4 crore in FY09).
Exhibit 13: Net worth to turn positive in FY11E
406.3
450 25
300 184.6 20
28.0 82.1
150 15
0
10
-150
-300 5
-450 0
-429.4 -328.2
-600 -5
Networth (Rs crore) Debt-to-equity (x)

Page 39
Risks and Concerns

Increase in crude oil prices
LFCs, such as SpiceJet, are more vulnerable to rise in crude oil prices
than FSCs as fuel expenses account for about 45-50% of the total
operating expenses (vs. 30-35% for FSCs). In a rising fuel price
environment, LFCs are forced to hike their ticket prices more rapidly than
FSCs, thus narrowing the gap between ticket prices of these carriers.
Continuance in macroeconomic slowdown

SpiceJet primarily caters to the demand of typical low-cost travellers who
have upgraded themselves from premium railways services and prefer
personal or leisure travel. Given the dependence of air traffic on the
economic performance, a slowdown in macroeconomic growth will hit
the low cost travellers more than business travellers. This can negatively
impact SpiceJet’s pax traffic growth.
Excessive capacity addition may lead to decline in utilisation levels

Our analysis suggests that the present demand situation in the sector is
well aligned with the capacity situation and the sector can easily
accommodate capacity growth of 7-8% in the next two or three years.
However, LFCs such as SpiceJet, Indigo, Go Air and Paramount have
strong capacity addition plans as 28 new aircraft are expected to be
delivered to these airlines during FY10E-12E. Any slowdown in the
demand situation during our forecast period will create an oversupply
situation in the sector, leading to a decline in load factors.

Page 40
Financials
Total revenues to grow at a CAGR of 20.8% during FY10E-12E
SpiceJet’s total revenues witnessed a growth of 27.0% YoY during April-
December ‘09 (vs. 42.1% YoY witnessed during April-December ‘08)
primarily due to the high base effect. The growth was driven by a decline
in fuel surcharges (average crude oil prices of US$68.2 per barrel during
April-December 2009 vs. US$100.1 per barrel during April-December
2008). Consequently, we estimate that total revenues will grow at 30.3%
SpiceJet’s revenues to grow at a CAGR of 20.8% to YoY to Rs 2,202 crore in FY10E. In our view, SpiceJet’s revenues will
Rs 3,215.8 crore during FY10E-12E (higher than grow at a CAGR of 20.8% to Rs 3,215.8 crore during FY10E-12E (higher
15% growth for market leader JAL) driven by a than 15% growth for market leader JAL) driven by a revival of domestic
revival of domestic pax demand and preference pax demand and preference towards low cost travel.
towards low cost travel. Exhibit 14: Net sales estimated to grow at a CAGR of 20.8% during FY10E-12E
3,500 3,215.8 120

2,681.3 100
2,800
2,202.0
80
Rs. crore
2,100 1,689.4
1,295.0 60
1,400
643.8 40
700 20
0 0
Net sales - LHS Growth YoY % - RHS
EBITDA to improve significantly during FY10E-12E

We estimate that the EBITDA of the company will improve significantly in
FY10E (Rs 74 crore vs. Rs -419.2 crore in FY09) driven by strong growth in
net sales and a decline in fuel expenses (11% YoY in FY10E). In our view,
strong topline growth and stable crude oil prices expected during FY10E-
12E will help SpiceJet to manage its expenses better than the past years.
As a consequence, we expect positive EBITDA of Rs 216.5 crore during
FY11E and Rs 335.4 crore during FY12E. Further, the EBITDA margin of
the company is expected to grow to 10.4% in FY12E vs. -24.8% in FY09.
Exhibit 15: EBITDA to improve during FY10E-12E
350 10.4 15
8.1
200 3.4 8
335.4
216.5
50 74.0 0
Rs. crore
-100 -160.8 -8
-252.0
-419.2
-250 -15
-400 -25.0 -23

-19.5
-550 -24.8 -30
EBITDA - LHS EBITDA Margin (%) - RHS

Page 41
Full year profit expected in FY10E

We expect SpiceJet to report a net profit of Rs 101.3 crore in FY10E (after
witnessing losses during the past five years). In addition to a strong
improvement in the margin, we estimate lower interest payment of Rs 8.6
crore in F10E (vs. Rs 16 crore in FY09) due to repayment of secured loans
scheduled during the year. Further, we believe that the company will
proceed with the part-conversion of FCCBs (which is due on December
20009) into equity shares, leading to a decrease in interest payment
obligations during FY11E-12E. As a result, we expect the net margin to
expand to 10.8% in FY12E.
Exhibit 16: Net margin to improve during FY10E-12E
We expect company’s net margin to expand to
10.8% in FY12E.
400 20
200 10
324.2
243.7
Rs. crore
101.3
0 0
-80.1 -133.5
-200 -352.6 -10
-400 -20
Net Profit - LHS Net Margin (%) - RHS
Net worth to turn positive in FY11E

Net worth of the company to turn positive in FY11E.
With increased visibility in operating profit, we expect the net worth of the
company to turn positive in FY11E.
Exhibit 17: RoCE expected to improve in FY11E-12E
450 406.3 100

300 184.6 50
150 82.1
28.0 0
0
-50
-150
-100
-300
-450 -328.2 -150
-600 -429.4 -200

Net Worth ROCE (%)

Page 42
Valuations
SpiceJet has emerged as the second-largest LFC in India with a market
share of 12.8% in Q3FY10. We believe that SpiceJet will be one of the
prime beneficiaries of the preference of passengers towards low cost air
travel (as the economy comes out of the slowdown) and potential shift of
premium rail passengers towards air travel. As a consequence, we expect
SpiceJet’s pax traffic growth (CAGR of 17.5% during FY10E-12E) to be
higher than the sector (12.8%). Further, the lower fuel price expected
SpiceJet is valued at 9.6x FY11E during our forecast period (US$80.3 per barrel in FY11E and US$83.9 per
EV/EBITDA , at Rs 72 per share. barrel) will help the company to improve its EBITDA margin to 10.4% in
FY12E (vs. -24.8% in FY09).
SpiceJet’s earnings are highly susceptible to the movement of crude oil
prices as fuel expenses account for about 45-50% of the total operating
expenses. Higher-than-expected crude oil prices can negatively impact
the company’s operations. We are also concerned about the capacity
addition by SpiceJet and other LFCs such as Indigo, Go Air and
Paramount that can lead to an overcapacity situation in the sector in case
demand growth remains muted. The sudden withdrawal of fiscal stimulus
by the government can derail the economic growth momentum, leading
to low pax traffic.
At the CMP of Rs 58.0, the stock is trading at 7.4x FY11E EV/EBITDA

against its global peer’s average mean FY11E EV/EBITDA of 8.8x. We
believe the stock is currently undervalued considering its improving
operational performance on account of the improving macroeconomic
outlook. The company has a sound financial position and is also foraying
into the profitable international market. As a result, we value the company
at 9.0x FY11E EV/EBITDA (i.e. at a premium to its global players). We are
initiating coverage on the stock with a target price of Rs.72 and a
STRONG BUY rating, offering an upside of 24%.
Exhibit 18: Comparable Analysis

Company EV EV/Revenue EV/EBITDA EV/EBIT P/BV
USD m TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E TTM FY10E FY11E
Air China 4.6x 4.5x 3.9x 60.8x 22.6x 17.5x NA 106.5x 44.2x 5.3x 4.4x 3.9x
China Eastern Airlines Co. 1.4x 1.3x 1.0x NA 14.4x 6.7x NA NA 17.6x 2.3x NA 15.7x
China Southern Airlines Co. 1.4x 1.3x 1.1x NA 9.9x 6.7x NA 150.3x 30.2x 5.4x 4.2x 3.7x
EVA Airways 1.3x 1.5x 1.3x 68.6x 11.7x 9.8x NA NA 54.6x NA 1.3x 1.3x
Cathay Pacific 1.1x 1.4x 1.2x NA 9.6x 8.3x NA 21.6x 21.4x 1.5x 1.4x 1.3x
Korean Air 1.2x 1.2x 1.2x 18.4x 11.5x 8.4x NA 52.0x 21.2x 1.7x 1.4x 1.3x
Malaysia Airlines 0.4x 0.4x 0.4x NA NA 11.7x NA NA 23.2x NA 1.3x 1.5x
Singapore Airlines 0.9x 1.2x 1.0x 5.4x 8.0x 5.2x 15.7x 294.2x 16.9x 1.2x 1.2x 1.2x
Thai Airways International 0.8x 1.0x 0.9x 31.5x 5.9x 5.2x NA 21.0x 17.6x 0.6x 0.6x 0.6x
Median 1.2x 1.3x 1.1x 31.5x 10.7x 8.3x 15.7x 79.2x 21.4x 1.7x 1.4x 1.3x
Mean 1.5x 1.5x 1.3x 36.9x 11.7x 8.8x 15.7x 107.6x 27.4x 2.6x 2.0x 3.4x
Adjusted Mean** 1.1x 1.2x 1.0x 36.9x 10.1x 7.8x 15.7x 70.3x 24.0x 2.7x 1.8x 3.7x

Page 43
Table and Ratios

Profit and loss statement
(Rs Crore)
Net Sales 1,295 1,689 2,202 2,681 3,216
% Growth 101.1 30.5 27.9 15.4 19.9
Fuel Expenses 703 945 820 980 1,134

% of Sales 54.3 55.9 37.2 36.5 35.3
Personal Cost 140 155 181 195 214
% of Sales 10.8 9.2 8.2 7.3 6.6
Other Operating Exps 704 1,008 1,127 1,290 1,532
% of Sales 54.4 59.7 51.2 48.1 47.7
Total Expenditure 1,547 2,109 2,128 2,465 2,880
% Growth
Operating Profit -252 -419 74 216 335

% Growth 56.8 66.3 -117.7 192.5 54.9
Depreciation 8 7 9 13 13
EBIT -260 -426 65 203 322
% Growth 47.6 64.1 -115.2 213.2 58.5
Interest 14 16 9 13 13
Non-operation income 144 105 49 54 64
Profit before Tax -130 -337 105 244 374
% Growth 71.5 159.4 -131.2 131.6 53.4
Taxation 0 0 0 0 50
Net Profit -130 -337 105 244 324

% Growth 71.5 159.4 -131.2 131.6 33.0

Page 44
Balance Sheet
(Rs Crore)
Liabilities
Equity Share Capital 241 241 241 305 305
Preference capital 0 6 6 0 0
Reserves & Surplus -213 -677 -575 -223 102
Secured Loans 167 33 21 37 43
Unsecured Loans 365 456 456 306 306
Current Liab. & Prov. 791 691 730 751 768
Others 0 0 0 0 0
Total Liabilities 1,351 751 878 1,176 1,523
Assets
Gross Block 86 96 96 96 96
Less: Acc. Depreciation 21 28 41 54 67
Net Block 65 68 55 42 29
Capital WIP 499 185 185 360 360
Net Fixed Assets 564 253 240 402 389
Loans & Advances 174 154 214 271 316

Cash 600 308 399 472 783
Trade Receivables 2 12 13 16 19
Inventory 11 23 12 15 17
Investments 0 0 0 0 0
Total Current Assets 787 498 638 774 1,135
Total Assets 1,351 751 878 1,176 1,523

Page 45
Cash Flow statement

(Rs Crore)
Profit after Tax -130 -337 105 244 374
Depreciation 8 7 9 13 13
Other Non Cash expenses 0 0 0 0 0
Diect Tax Paid 2 3 0 0 50
Interest Income 0 0 0 0 0
Others 130 108 40 40 51
Cash Flow before WC Changes -254 -441 74 216 286
Net Increase in Current Liabilities 35 -225 39 21 17

Net Increase in Current Assets 58 3 49 63 50
Cash Flow after WC Changes -278 -670 63 175 254
Purchase of Fixed Assets 171 304 0 0 0

(Inc.)/Dec. in Investment 81 0 0 0 0
CF from Investing 396 429 49 -121 -111
Increase/(Decrease) in Loan Funds 99 -43 -12 -134 6

Increase/(Decrease) in Net Worth -26 -53 0 173 0
Others -14 -10 -9 -19 -13
Casf Flow from Financing Activities 60 -106 -21 19 -7
Op. Cash & Cash equivalents 351 600 308 399 472
Cl. Cash & Cash equivalents 600 308 399 472 783

Page 46
Ratios
Per share data (Rs)
EPS -5.4 -14.0 4.4 8.0 10.6
Cash EPS -5.1 -13.7 4.7 8.4 11.1
Book Value 1.2 -17.8 -13.6 2.7 13.3
Operating Profit Per Share -10.5 -17.4 3.1 7.1 11.0
Operating Ratios
Operating Margin -19.5 -24.8 3.4 8.1 10.4
Net Profit Margin -10.0 -20.0 4.8 9.1 10.1
Return Ratios
RoNW -124.6 169.6 -27.8 -198.1 132.7
ROCE -44.2 -137.8 62.6 71.0 54.7
Valuation Ratios
EV/EBITDA NA NA 20.0 7.6 4.0
PE -10.5 -4.1 13.3 7.3 5.5
EV/Sales 1.0 0.9 0.67 0.61 0.41
Sales to Equity 46.3 -3.9 -6.7 32.6 7.9
Market Cap to Sales 1.1 0.8 0.6 0.5 0.4
Price to Book Value 49.9 -3.3 -4.3 21.5 4.4
Turnover Ratios
Fixed Asset Turnover Ratio 159.0 54.6 39.8 54.7 44.1
Debtor turnover 0.5 2.7 2.1 2.2 2.1
Creditor turnover 133.0 236.8 157.4 149.4 170.4
Cash to abs. Liab. 0.8 0.4 0.5 0.6 1.0
Solvency Ratios
Debt/Equity 19.0 -1.1 -1.5 4.2 0.9
Current Ratio 1.0 0.7 0.9 1.0 1.5
Quick ratio 1.0 0.7 0.9 1.0 1.5

Page 47
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Add, Reduce, and Sell. The performance horizon is two years unless specified and the
notional target price is defined as the analysts' valuation for a stock.
Strong Buy: 20% or more;

Buy: Between 10% and 20%;
Add: Up to 10%;
Reduce: Up to -10%
Sell: -10% or more;
Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
7th Floor, Akruti Centre Point,
MIDC Main Road, Marol Naka,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com
ANALYST CERTIFICATION
We /I, Rashesh Shah CA BCOM; research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal
views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
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underwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of
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generally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts
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The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
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