Kingfisher Airlines - Dropping coverage; Sell at every rise - GEPL Capital

Crash landing expected; limited lifejackets on-board

- Kingfisher Airlines (KFA) reported a 52.2% Y-o-Y decline in revenues to Rs.7.4 bn driven by a 44% Y-o-Y de-growth in RPKM (demand) and 14.6% Y-o-Y de-growth in yields (revenue/RPKM).

- The passenger load factor (PLF) declined by 1050bps Y-o-Y to 71.3% even as the capacity (ASKM) de-grew 25.5% Y-o-Y with fleet reduction. The feet size fell to 55 in Q4FY12 as compared to 66 in Q4FY11.

- Higher fuel prices (73.5% of sales in Q4FY12 vs 43.1% in Q4FY11) and higher staff cost (18.5% of sales in Q4FY12 vs 11.1% in Q4FY11) led to KFA reporting an EBITDAR loss of Rs2.28 bn in Q4FY12 vs an EBITDAR profit of Rs468 mn in Q4FY11. The lease rentals fell by ~60% to Rs1 bn led by the grounding and returning of fleet.

- The company also changed its accounting policy leading to lower than expected other income. However, extra-ordinary items of Rs10.4 bn ensured that the losses in Q4FY12 widened to Rs11.5 bn vs Rs3.55 bn in Q4FY11.

Result Highlights

Company to pull-out of historically higher margin international business

The international revenues de-grew by 46.7%% Y-o-Y driven by the company's decision to pull out of loss making international routes. Fuel cost however surged to 85.9% of sales for its international operations leading to an EBITDAR loss of Rs 980 mn and EBITDA loss of Rs1.6 bn.

Domestic business (non)- performance clearly visible

The domestic revenues de-grew by 66% Y-o-Y driven to Rs4.2 bn. This was led by lower flights in the quarter due to a) grounding and returning of fleet, b) strike by employees, c) IT department freezing their accounts, d) OMCs putting it on a cash-and-carry basis etc.

These above factors led to the market share falling to 6.4% in Mar'12 from 20% in Mar'11. The yields (ticket prices) too plunged by 35% Y-o-Y as KFA tried to pursue travelers with lower fares. The high fixed cost of the industry ensured the EBITDA loss widened to Rs2.8 bn for the domestic business.

Expect the high debt to weigh strongly over KFA in the next few quarters

The current year saw KFA's debt balloon to ~Rs80 bn. Given the higher cost involved for the company and the reduction in its revenue stream we believe debt repayment has become a bigger challenge for the company. Consequently, we expect the interest burden to weigh heavily on their financials and lead to further erosion of net worth in the near future.

Valuation & Viewpoint

We do not expect the "holding plan" stated to KFA with a limited fleet to lead to any progress for the airline. We also expect the reconfiguration of aircraft to remain a challenge for the company despite the company's mission to operate on a full-scale in the next 12 months. Hence, we do not see any value in the company and expect the interest burden to weigh heavily on the company given the sharp fall in revenues. Consequently we are removing KFA from our coverage universe and advise clients to exit from any current holdings.

Source : Equity Bulls

Keywords