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www.rupeetax.com
April 19
RupeeTax
Predictive Series#2
Predictive power of Financial Statements Examining collapse in stock price of Airways
Jet Airways is in the news for wrong
reasons as it heads towards closure
of operations; a good time to
examine the predictive power of
financial results on stock
performance.
Predictive power of
collapse of Jet
for wrong
as it heads towards closure
of operations; a good time to
examine the predictive power of
results on stock
1
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In this note which is part of our predictive series, we examine the collapse in stock
price of Jet Airways from Jan 18 till
by the Company could have predict
manner i.e. before the value of their investments
Background
� Jet Airways has recently suspended operations after a turbulent year which saw
long and unfruitful negotiations between the owners, investors and lenders to
work out a plan to save the airline.
� The stock price of Jet Airways had reached an all time high of Rs. 870 just a yea
back in Jan18. The stock
subsequently reached a low of
Jan 19 to Rs. 250 levels (a loss of 70% from peak).
� Stock prices of other Indian airlines (Spice, Indigo)
Jan 18 and declined subsequent
moderate.
� Jet Airways declared financial results for Dec17 quarter on 14 Feb 18 and
for 31 Mar18 on 23 May 18.
of impending trouble (th
� Credit rating of Jet Airways was downgraded by ICRA
after the annual results
� Jet Airways reported a loss
revenue in Q4FY18 (Mar18)
loss of this magnitude only once in FY14.
consistently reported losses
In this note which is part of our predictive series, we examine the collapse in stock
price of Jet Airways from Jan 18 till April 19 and whether financial results
predicted the decline and helped investors act in a timely
before the value of their investments crash landed.
Jet Airways has recently suspended operations after a turbulent year which saw
and unfruitful negotiations between the owners, investors and lenders to
work out a plan to save the airline.
price of Jet Airways had reached an all time high of Rs. 870 just a yea
back in Jan18. The stock then declined to Rs. 400 by end of Ma
a low of Rs. 177 in Oct 18 followed by a mild recovery in
250 levels (a loss of 70% from peak).
Indian airlines (Spice, Indigo) also reached all
eclined subsequently though the decline was
financial results for Dec17 quarter on 14 Feb 18 and
Mar18 on 23 May 18. The results for Jun18 were delayed showing first sign
of impending trouble (though Jet has a history of delaying financial results).
Credit rating of Jet Airways was downgraded by ICRA to BB on 28 Mar
after the annual results for Mar 18 were published).
Jet Airways reported a loss (before interest) of 15.7% as percentage
(Mar18). In the earlier ten years, the Company had reported a
loss of this magnitude only once in FY14. After Q4 FY18, Company has
consistently reported losses every quarter.
2
In this note which is part of our predictive series, we examine the collapse in stock
and whether financial results published
and helped investors act in a timely
Jet Airways has recently suspended operations after a turbulent year which saw
and unfruitful negotiations between the owners, investors and lenders to
price of Jet Airways had reached an all time high of Rs. 870 just a year
Rs. 400 by end of May 18 and
177 in Oct 18 followed by a mild recovery in
reached all-time highs in
the decline was comparatively
financial results for Dec17 quarter on 14 Feb 18 and results
were delayed showing first sign
financial results).
on 28 Mar18 (5 days
percentage of operating
. In the earlier ten years, the Company had reported a
After Q4 FY18, Company has
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Financial results and movement in
� Stock price movement over last three years and timing of key news/events are
plotted below. Quarterly f
Annexure 1).
2018 Price 171.90 Vol 702916
� Stock price increased from
had posted good numbers and profitability every quarter from Jun15 to
Prices of other airlines had also
justification for rise in stock
� The biggest decline for Jet airways was between
Jan18 and May18 from
the decline in price in this period
between 1 May 18 (Rs. 643)
before Jet announced terrible results for Q4.
8 Dec17
financial results
9 May 18
Jet with Jet Lite not approved
17 Sep 17 – Moderate
results for Q1
movement in stock price
price movement over last three years and timing of key news/events are
Quarterly financial results (operating profit are presented in
increased from 350 levels in Jan 17 to 850 levels by Jan 18. Company
good numbers and profitability every quarter from Jun15 to
Prices of other airlines had also increased in this period. This provided a strong
stock prices.
The biggest decline for Jet airways was between
Jan18 and May18 from Rs. 769 to 400. Interestingly,
in this period was the highest
(Rs. 643) and 22 May 18 (Rs. 400)
terrible results for Q4.
28 May 18- ICRA rating
downgrade to BB – no
immediate impact on stock
price
`
23 May18 huge loss declared for Q4,
stock already has hit a low
14 Feb 18 - Strong profit
for declared for Dec17,
stock almost at peak
announced. Loss higher
8 Dec17 – Strong
financial results for Q2
[PP]
9 May 18 - Merger scheme of
Jet with Jet Lite not approved
Biggest decline in stock
prices was between 1 May
and 23 May before results
for Mar18 were announced
3
price movement over last three years and timing of key news/events are
are presented in
0 levels by Jan 18. Company
good numbers and profitability every quarter from Jun15 to Dec17.
This provided a strong
23 May18 huge loss declared for Q4,
stock already has hit a low[No PP]
13Aug18 – Results
for Q1 not
announced.
Situation
worseningPP
28 Aug18, results
announced. Loss higher
than Mar18. PP
Biggest decline in stock
prices was between 1 May
and 23 May before results
for Mar18 were announced
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� Stock price further declined
Rs. 222 in Oct18. This followed the significant losses declared in Mar18
and Jun18 results, thereby giving investors time to react to the financial results
and act (sell) accordingly.
losses in history were strong
� Stock prices of Indigo and Spice also declined in these periods
however the decline was much lower as their losses also were much lower than
Jets.
� There were rumours and expectations throughout the last three years and more
so in the last year about
airline. These seemed to be driving/supporting stock price of Jet Airways.
importance to positive numbers in Mar16 and Mar17, the strong brand name
and equity investment by Etihad in valuing the airline
Observations
� Reasonable financial performance
provided strong indicators for
to Jan 18 (Rs. 870).
� Price of Jet declined significantly between 1 May 18 and 23 May
results for Mar 18 were announced
However, investors did not have any
May 18 that would have hel
information in this period was:
o First week of May18
Networth of Jet Airways
was consistently
negative
declined from Rs. 400 in May 18 to Rs. 318 in July 18 and to
222 in Oct18. This followed the significant losses declared in Mar18
and Jun18 results, thereby giving investors time to react to the financial results
and act (sell) accordingly. Two quarters of consecutive losses which
strong predictors for investors to act (sell).
of Indigo and Spice also declined in these periods
however the decline was much lower as their losses also were much lower than
There were rumours and expectations throughout the last three years and more
so in the last year about possible buy-out of Jet Airways by a stronger (Foreign)
These seemed to be driving/supporting stock price of Jet Airways.
� The networth of Jet Airways was negative since
2013. The Company had net losses in all years other
than Mar16 and Mar 17 and clear difficulties in
servicing debt. However, the market seemed to give
importance to positive numbers in Mar16 and Mar17, the strong brand name
and equity investment by Etihad in valuing the airline.
performance from Jun15 to Dec17 driven by
provided strong indicators for rise in stock price of Jet between
Price of Jet declined significantly between 1 May 18 and 23 May
were announced (Red arrow in the chart on price movement)
nvestors did not have any financial information between Feb 18 and
May 18 that would have helped take appropriate decisions.
information in this period was:
First week of May18 - The merger with Jet Lite was not been approved.
4
318 in July 18 and to
222 in Oct18. This followed the significant losses declared in Mar18 results
and Jun18 results, thereby giving investors time to react to the financial results
which exceeded all
(sell).
of Indigo and Spice also declined in these periods (May to July 18)
however the decline was much lower as their losses also were much lower than
There were rumours and expectations throughout the last three years and more
out of Jet Airways by a stronger (Foreign)
These seemed to be driving/supporting stock price of Jet Airways.
Airways was negative since
net losses in all years other
and clear difficulties in
However, the market seemed to give
importance to positive numbers in Mar16 and Mar17, the strong brand name
to Dec17 driven by low fuel prices
between Jan 17 (Rs. 350)
Price of Jet declined significantly between 1 May 18 and 23 May before the
in the chart on price movement).
financial information between Feb 18 and
ped take appropriate decisions.Some relevant
not been approved.
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o Oil prices had increased marginally in this period though increase was
substantial in ea
Annexure 2).
o Mutual funds sold
� The loss declared for Mar 18 and Jun18 quarter had sufficient predictive power
in terms of the price declines thereafter
Indigo suffered significantly
wrong. However, most of the price fall had happened prior to Jun18 hence
investors could have saved some of
already been significantly
� A relevant question is whether a single quarter can predict future performance
or if it should be considered a one
higher than in any other financial year. Also, other airlines had not suffered a
similar loss. Both these points (coupled ironically
price from 1 May to 23 May) would strengthen the view that time had come to
sell.
� The Sep18 quarter was bad for Jet though it was worse for Spice Jet and Indigo.
However, both airlines sho
Jet Airways by showing small profit compared to 6%
both Indigo and Spicejet the loss appeared to be one off hence not a strong
enough predictor to act.
� The stock price of Jet over last six months seems to be afloat purely based on
expectation of revival and a new management taking over as otherwise there
seems to be no intrinsic value for equity shareholders.
Conclusion on PP
increased marginally in this period though increase was
earlier periods i.e. between Jun17 to May18 (Refer
sold 3.4 million shares between Mar18 and Jun18.
The loss declared for Mar 18 and Jun18 quarter had sufficient predictive power
in terms of the price declines thereafter – this is further more becaus
significantly lower losses hence Jet was clearly doing something
However, most of the price fall had happened prior to Jun18 hence
saved some of their money, the value of their shares had
significantly eroded.
A relevant question is whether a single quarter can predict future performance
or if it should be considered a one-off. In case of Jet, the loss in Mar18 was much
higher than in any other financial year. Also, other airlines had not suffered a
. Both these points (coupled ironically with the decline in market
price from 1 May to 23 May) would strengthen the view that time had come to
The Sep18 quarter was bad for Jet though it was worse for Spice Jet and Indigo.
However, both airlines showed much better Dec18 financial results compared to
by showing small profit compared to 6% operating
both Indigo and Spicejet the loss appeared to be one off hence not a strong
enough predictor to act.
over last six months seems to be afloat purely based on
expectation of revival and a new management taking over as otherwise there
seems to be no intrinsic value for equity shareholders.
5
increased marginally in this period though increase was
Jun17 to May18 (Refer
3.4 million shares between Mar18 and Jun18.
The loss declared for Mar 18 and Jun18 quarter had sufficient predictive power
this is further more because Spice and
hence Jet was clearly doing something
However, most of the price fall had happened prior to Jun18 hence while
value of their shares had
A relevant question is whether a single quarter can predict future performance
off. In case of Jet, the loss in Mar18 was much
higher than in any other financial year. Also, other airlines had not suffered a
the decline in market
price from 1 May to 23 May) would strengthen the view that time had come to
The Sep18 quarter was bad for Jet though it was worse for Spice Jet and Indigo.
wed much better Dec18 financial results compared to
operating loss for Jet. For
both Indigo and Spicejet the loss appeared to be one off hence not a strong
over last six months seems to be afloat purely based on
expectation of revival and a new management taking over as otherwise there
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� Price rise between Jan17
The Financial results had
profits were followed by increase in prices (
role).
� Significant price fall between 1 May
[PP].
The price collapsed the most in this period. However, as results were not
declared, investors had little predictive power based on financials
determinants of price decline could be rise in fuel prices
with Jet Lite). It would be
to some information about the Company that was no
market coming as it was a few weeks before results were published on 23
May18.
� Continuing fall after May
[PP].
The terrible financial results declared for Mar18, Jun18
and thereafter provided strong predictive power for
further decline in stock prices.
Note: Oil prices are a key driver for financial results of Airlines. However,
as the change in oil prices would affect all airlines equally the impact of
the same has not been considered in the analysis.
Oil price movement. Jet has mentioned that the losses in Mar18 were
due to maintenance charges, however, despit
than other airlines.
The purpose of this note is to compare the relationship between operating profits/losses and stock
prices .However, there are many reasons for movement in prices apart from
As Jet Lite was not significant, only results of standalone Jet Airways have been analysed.
Jan17 and Jan18 – High predictive power [PP]
The Financial results had Predictive Power from Jun15 to Dec17
wed by increase in prices (low fuel prices also played a large
Significant price fall between 1 May18 and 23 May18– No predict
price collapsed the most in this period. However, as results were not
declared, investors had little predictive power based on financials
price decline could be rise in fuel prices and non
would be interesting to find out if the decline could also be due
information about the Company that was not available to the wider
market coming as it was a few weeks before results were published on 23
May18 – High predictive power
terrible financial results declared for Mar18, Jun18
and thereafter provided strong predictive power for
further decline in stock prices.
Note: Oil prices are a key driver for financial results of Airlines. However,
the change in oil prices would affect all airlines equally the impact of
the same has not been considered in the analysis. (Refer Annexure 2 for
Jet has mentioned that the losses in Mar18 were
due to maintenance charges, however, despite such one-time costs, the loss of Jet was much higher
The purpose of this note is to compare the relationship between operating profits/losses and stock
.However, there are many reasons for movement in prices apart from operating profits/losses.
As Jet Lite was not significant, only results of standalone Jet Airways have been analysed.
Financial results have
predictive power if
assessed
a large part of decline in
the price
results were declared
indicating importance of
news and inside/smart
information about the
Company
6
[PP].
from Jun15 to Dec17 as the quarterly
low fuel prices also played a large
No predictive power
price collapsed the most in this period. However, as results were not
declared, investors had little predictive power based on financials (key
and non-merger of Jet
if the decline could also be due
t available to the wider
market coming as it was a few weeks before results were published on 23
costs, the loss of Jet was much higher
The purpose of this note is to compare the relationship between operating profits/losses and stock
operating profits/losses.
As Jet Lite was not significant, only results of standalone Jet Airways have been analysed.
Financial results have
predictive power if
assessed well. However,
a large part of decline in
the price Jet was before
results were declared
indicating importance of
news and inside/smart
information about the
Company.
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Reaching conclusions after an event has happened is always easy. Our subsequent
predictive power reports will analyse predictive power of
on results announced in months of April and May 2019.
For clarifications contact:
Analyst team: [email protected]
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The securities discussed and opinions expressed in this report may not be suitable for
all investors, who must make their own investment decisions, based on their own
investment objectives and financial situation
evaluate risks associated with their investments
any loss or damage of any kind arising out of the use of this report
Reaching conclusions after an event has happened is always easy. Our subsequent
reports will analyse predictive power of financial statements based
on results announced in months of April and May 2019.
The securities discussed and opinions expressed in this report may not be suitable for
all investors, who must make their own investment decisions, based on their own
objectives and financial situation. The reader should independently
isks associated with their investments. We accept no liability
any loss or damage of any kind arising out of the use of this report.
7
Reaching conclusions after an event has happened is always easy. Our subsequent
financial statements based
The securities discussed and opinions expressed in this report may not be suitable for
all investors, who must make their own investment decisions, based on their own
should independently
ty whatsoever for
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Annexure 1
Jet Airways – key financial parameters
Note: operating profit used in this report is
Jet Airways – Summary results for past 10 years
Spicejet – key financial parameters
Indigo – key financial parameters
30-Sep-16 31-Dec-16
Total Income From Operations 5,420 5,478
Power & Fuel 1,307 1,429
Employees Cost 813 700
Admin. And Selling Expenses 629 639
Other Expenses 2,361 2,425
P/L Before Other Inc. , Int., Excpt.
Items & Tax 60 73
Power and Fuel as % of Total
Income 43.5
Power, Admin and other expenses 79.3
Operating Profit % of Total Income 1.1
Mar-09
Revenue 11,571 10,439
P/L Before Other Inc. , Int., Excpt.
Items & Tax -1,558 -500
Operating Profit % of Total Income -13.5
30-Sep-16 31-Dec-16
Total Income From Operations 1,400 1,642
Operating Profit % of Total Income 4.5
30-Sep-16 31-Dec-16
Total Income From Operations 4,167
Operating Profit % of Total Income 1.8
key financial parameters
Note: operating profit used in this report is P/Lbefore other income, interest and exceptional.
Summary results for past 10 years
key financial parameters
31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18
5,478 5,449 5,649 5,627 6,086 5,925 6,010
1,429 1,581 1,524 1,526 1,840 2,063 2,332
700 779 725 769 729 773 816
639 617 683 656 700 788 561
2,425 2,363 2,572 2,415 2,537 3,066 3,319
73 (80) 0 107 124 (930) (1,131)
44.3 43.4 45.5 42.9 41.7 51.7
82.0 83.7 84.6 81.7 83.4 99.9
1.3 -1.5 0.0 1.9 2.0 -15.7
Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
10,439 12,737 14,816 16,853 17,302 19,573 21,167
-500 -143 -1,329 -592 -2,946 -1,055 1,095
-4.8 -1.1 -9.0 -3.5 -17.0 -5.4
31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18
1,642 1,626 1,870 1,814 2,082 2,029 2,236
7.5 0.6 9.2 5.4 11.7 0.5
31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-18
4,987 4,848 5,753 5,291 6,178 5,799
10.1 8.3 17.4 12.0 14.3 0.0
8
30-Jun-18 30-Sep-18 31-Dec-18
6,010 6,161 6,148
2,332 2,420 2,388
816 803 781
561 637 579
3,319 3,331 2,671
(1,131) (1,142) (381)
55.2 54.1 43.5
103.4 103.7 91.7
-18.8 -18.5 -6.2
Mar-16 Mar-17 Mar-18
21,167 21,552 23,287
1,095 1,482 -768
5.2 6.9 -3.3
30-Jun-18 30-Sep-18 31-Dec-18
2,236 1,881 2,487
0.9 -20.5 2.1
30-Jun-18 30-Sep-18 31-Dec-18
6,512 6,185 7,916
-2.6 -19.2 0.2