Jet Airways
Jet Airways (Jet) has registered a 25% growth in revenues for FY07 at Rs70.5bn. EBITDAR for the year stood at Rs3.6bn and net profit at Rs280m. While domestic operations grew at 15% to Rs57bn, international operations grew by a remarkable 100% at Rs13.5bn. Furthermore, the contribution from international operations grew to 20% in FY07 as against 12% in FY06.
In a year where the industry has lost close to $400mn, Jet has managed to turnaround its operations starting in Q3FY07. Even in a traditionally slow fourth quarter, Jet has reported a 21% growth in revenues in Q4FY07 at Rs19.8bn and an EBITDAR of Rs2.8bn, which is notable considering the losses in the industry. Jet has also registered a strong net profit in the quarter of Rs880m as against losses in the first 2 quarters of the year. The turnaround came on the back of a 120% growth in international operations and a 9% growth in domestic operations in the quarter. Further in Q4FY07, international operations are starting to turn profitable at the EBITDA level at Rs31mn.
ONGC
ONGC reported Q4FY07 numbers that were marginally below our expectation. Net profits at Rs22.1bn were down 9.7% yoy, led by higher under recovery contribution (up 37% yoy to Rs 46.7bn). For FY07, consolidated profits were up 15.4% yoy to Rs 177.7bn, driven by higher crude / gas realization as well as higher production. The stock trades at a steep discount to global / domestic earnings as well as reserve valuations, which reflects highly pessimistic estimates on loss sharing, APM deregulation and growth. However, with a 21-32% increase expected in ultimate (recoverable) reserves over the next 18-24 months, low earnings sensitivity to international crude prices and falling proportion of APM gas, we see the valuation gap narrowing significantly. Reiterate Outperformer, with a revised target price of Rs1337, upside of 43% from current levels.
Dish TV
Dish TV has reported revenues of Rs1916m (against our estimates of Rs1823m) on a subscriber base of 1.9m in FY07. As anticipated of heavy losses in initial years, Dish TV has reported operating loss of Rs1825m and net loss of Rs2523m, much wider than our estimates of a net loss of Rs2070m. Significant part of the bleed comes due to higher pay channel costs, ASP expenses and subsidization of Set Top Boxes. Given the interoperability of content, the only differentiator lies in service standards and subsidies (or Balance Sheet). On both counts, given the emerging competitive environment, Dish TV is unlikely to find the going smooth.
We believe that Indian television distribution is set for digitization. With DTH being less regulated and more organized, we expect DTH to outpace digital cable in near term and become a 16m home market by 2010. While we are positive over the space as also Dish TV's first mover advantage, our concern pertains to intensifying competition. Competition from deeper pocketed players like Reliance ADAG, Bharti, Tatas and Sun would only make it difficult for Dish TV to sustain its share of incremental market (from over 75% now to 32% by 2010E) as also extend the bleed period. Increasing subsidies and customer acquisition cost, besides impending dilution to fund Rs7bn of capex, leave no value for investors. Reiterate Neutral.
