FIU

Aviation

Swajas Air Charters Limited

September, 2011

SWAJAS AIR CHARTERS LIMITED - Company Visit Report

Issue Detail
Issue size No. of share offer Equity Dilution Market Cap.(Post issue) Rs. 402mn/384mn 4,464,286 28.4% Rs. 1,414/1,351

Swajas is the only non scheduled airline having operations in 4 distinct segments i.e. general aviation, offshore, air ambulance & medical evacuation service and Operation & Maintenance service. Established in 1996, earlier focused only in southern region of India and has now expanded across India. Recently, the company has entered into lucrative business of Operation & Maintenance of third party aircraft/helicopter. With the foresight of increasing needs of private aircraft/helicopter for Indian corporate house and high networth individual (HNI),

Objective of the issue

To fund various expansion plan and to meet working capital needs.

there is immense growth potential in operation & maintenance of third party fleet business. The company is gradually increasing volume of its operation under the dry lease arrangement and also expected to get few more offshore exploration orders from ONGC and other offshore explorer. Considering the current growth in air charter business and gradually increasing volume of operations under the dry lease arrangement, the company is expected to record strong financial and operational

Fact Sheet
Particular Pre IPO Post IPO 4,911,900 31%

performance in the future. In addition, the companys strategic new ventures of Regional Airline service in the Southern region of India further strengthen our view on the fundamentals of the company. Revenue Contribution Valuation Summary: At the IPO price band of Rs. 86, Swajas is valuing at a PE multiple of 28.1x, 14.8x on FY12E and FY13E earnings. Considering Swajass assets light & low operating cost

Promoters no. of share 4,911,900 in (%) holding 44%

Chairman: Registered Office: Tel/Fax: Website:

Mr.Jayakumar 1/62-4, Ravi Colony,1st Steet, St. Thomas Mount, Chennai 600 016, Tamil Nadu. 91-44-4394 7700/4351 9017 www.swajasaircharter.com

model, higher offshore order inflow and leveraging its operation & maintenance services, the valuation looks attractive. In addition, the companys aspiration for regional airline business could be a revenue booster for the company contributing significantly to top line and bottom line.

Particulars IPO Price No of Outstanding share (In Lakhs) EPS P/E

PROJECTED VALUATIONS INCOME STATEMENTS FY12E FY13E 86 86 150 150

FY14E 86 150

FY15E 86 150

3.1 28.1

5.8 14.8

8.3 10.4

11.0 7.8

01

FIU
Objective of the IPO: To fund its various expansion plans and working capital requirements, Swajas seeks to raise ~ Rs. 375mn through IPO. 1. Part Finance the Fleet expansion; 2. Finance the setting up of MRO/Hangar Facility; 3. Finance the purchase of Office Building / Space 4. Finance the Working Capital Requirements; and

Particulars (Rs. in lakh) Total Sales Sales Growth (%) Operating expense % of sales EBITDA EBITDA Margin (%) Depreciation EBIT EBIT margin (%) Interest expense EBT EBT margin (%) Provision for tax % of EBT Profit after Tax Net Profit Margin (%) Investment Rationale:

PROJECTED INCOME STATEMENTS FY10a FY11 FY12E 2,915 3,263 5,710 12% 75% 2,774 3,001 5,139 95% 92% 90% 141 262 571 4.8% 8.0% 10.0% 4 6 7 137 256 564 4.7% 7.9% 9.9% 18.2 50.9 50.9 119 205 564 4.1% 6.3% 9.9% 40 71 104 34.0% 33.0% 18.5% 79 134 460 2.7% 4.1% 8.1%

FY13E 8,851 55% 7,771 88% 1,080 12.2% 9 1,071 12.1% 50.9 1,071 12.1% 198 18.5% 873 9.9%

FY14E 12,834 45% 11,294 88% 1,540 12.0% 11 1,529 11.9% 50.9 1,529 11.9% 283 18.5% 1,246 9.7%

FY15E 17,326 35% 15,290 88% 2,036 11.8% 13 2,022 11.7% 50.9 2,022 11.7% 374 18.5% 1,648 9.5%

Only Indian non-scheduled airline in different verticals with backward integration: Swajas is the only non-scheduled airline having operations in general aviation, offshore exploration, air ambulance service and Operation & Maintenance service. The companys vertical and backward integration model has helped to improve its volume of operation, drive the revenue growth and improve the profit margins. Venturing into Regional Airline business could be a major revenue booster: The company is planning to enter high growth Regional Airline business, which could significantly boost the top line and bottom line of the company. It is planning to acquire 2 to 3 year old Bombardiers for an estimated cost of USD 10mn, which might be financed through debt and equity combination. However, we have not incorporated this in our valuation as the deal is yet to be finalized.

Particulars (Rs. in Lakh) Regional Airline EBITDA EBITDA Margin (%) PAT PAT Margin (%)

2012-13E 27,700 3,435 12.40% 2,798 10.10%

2013-14E 64,450 7,734 12.00% 6,316 9.80%

2014-15E 147,800 17,440 11.80% 14,189 9.60%

02

FIU
Bombardier Q400 A twin-engine, medium range, turboprop airliners built by de Havilland Canada (DHC). Features include extreme short take-off and landing(STOL). 360 knot (667 km/h) cruise speed is 60-90 knots (111-166 km/h) higher than its competitors /predecessors. Powered by PW150A engines rated at 5,071 shp (3,781 kW) at maximum power (4,850 shp or 3,620 kW maximum continuous rated). Maximum operating altitude is 25,000 ft (7,600 m) for the standard version, although a version with drop-down oxygen masks is offered, which increases maximum altitude to 27,000 ft (8,200 m). Include the ANVS system. Breaks even with about 1/3 of its seats filled (or 1/4 with more closely spaced seats. Capacity: 79 passengers.

Capacity expansion to drive revenue growth and profitability: Swajas is going through significant expansions in order to become a major player in non-scheduled operator across India. The company has already increased number of fleet under dry lease operations from only one in FY10 to five as of today, and would increase further expand to 13 fleets by the end of FY12E. The company has expanded further to backward integration of Operation & Maintenance with its own hangar facilities. The company is also planning to set up regional air taxi service with a planned to buy 2 aircraft of 9 seating capacities. Considering its significant expansions, we expect a robust revenue growth and profitability in the future. Marque Clientele Based: Swajas serves a variety of clients under general aviation segment including Vedanta Aluminum, Suzlon, Sterlite Group of Industries, Krishnapatinam Port & Karaikal Port Authorities. Under the offshore charter service, two major energy companies i.e. Hardy Exploration & Production and Crain Energy Pvt. Ltd. The company is also presently pursuing a contract with ONGC for offshore fleet service. We expect a significant revenue growth and higher profit margin from this deal. However, our estimation does not include this contract as the deal is yet to complete. MRO segment provides greater opportunity for growth: Swajas is well placed in to make best out of the growing Indian MRO industry. The company is setting up a fully fledged MRO facility in Chennai with its own hangar facility and has ability to service its own 8 aircrafts and 7 third party aircraft. By the end of FY13E, the company will be able to service 13 third party flights. As per Swajas growth strategy, the company will be focusing on general aviation and would be able to capture 25% market share in the southern region. Operation & Maintenance Service-Growth Driver: Swajas has recently entered into operation & maintenance (O&M) services of aircrafts of third parties. Business house and individuals who own aircraft/helicopter, most of them could not afford to have a full fledged operation & maintenance department to take care of their fleet. With the foresight of increasing needs

03

FIU
of private aircraft/helicopter for Indian corporate house and high networth individual (HNI), there is immense growth potential in operation & maintenance of third party fleet business. International JV: Swajas is entering into a JV with Cambodia government for air-infrastructure development with expected deal size of US$ 10mn. The deal is in initial stage and yet to complete. The company is also planning to enter into a JV with Maldives airline for MRO service. This deal has potential generate revenue of Rs. 55-60mn/annum. However, we have not included in our financial forecast as yet to complete. Strong Balance Sheet: Swajas has a strong balance of very low debt of Rs. 50mn only with a comfortable Debt/Equity ratio of 0.17x in FY10. The management is expecting to maintain debt/equity ratio at the current level. We estimate debt/equity ratio to be at 0.13x in FY11E, 0.26x in FY12E and 0.18x in FY13E. In our view, low debt has helped to improve the profit margins otherwise the companys profitability could have been very low on account of double whammy effect of lease payment obligation and high interest expense. History of the company The company was founded by Mr. Jayakumar and Mr. Chris Ian Want in 1996. Started as small Aircraft Brokerage, with a single engine Cessna 172, the company has expanded its business to dry lease and wet lease a number of helicopters and aircrafts. Initially, the business was carried on through the Proprietorship concern, Swajas Aircharters. In Jul-08, the company transformed to a Private Limited Company Swajas Aircharters Private Limited. The company further transformed into a Limited Company in Jun-09 to fund its expansion plans.

04

Frontier Intelligence Unit

FIU

Ratings Definitions
Expected Return Above +20% -20% to +20% Below -20% Recommendation BUY HOLD SELL

Disclaimer
This document has been prepared by Frontier Intelligence Unit . ("FIU") which carries out research into quoted companies as part of its endeavor to issue research that is fair, clear and not misleading to its clients. This information is not intended to be an offer to buy or sell, or a solicitation of an offer to buy or sell any securities, or as an official confirmation of any transaction. The information contained herein this document including any expression of opinion herein is from publicly available data or other sources believed to be reliable, but we do not warrant or guarantee that it is accurate or complete and it should not be relied on as such, although we believe it to be fair and not misleading or deceptive. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. The investor must make an independent analysis of the borrowers financial condition and credit worthiness and not rely upon the analysis and information provided by us. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such investment. Whilst not part of our principal activities, FIU, and its affiliated companies in the Group reserve their full rights to deal in, profit from the trading of, hold or act as market-makers or act as advisers, brokers or bankers in relation to the securities, or derivatives thereof, of persons, firms or entities mentioned in this document or be represented on the board of such persons, firms or entities. FIU generally prohibits its analysts from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. However, Employees of FIU and their affiliated companies in the Group, or individuals connected to them may from time to time have a position in or may be holding any of the investments or related investments mentioned in this document. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. However, we do not hold this research out to be impartial. This information is strictly confidential and this is being furnished to the recipient solely for his/her information. This information should not be reproduced, redistributed, circulated by any means or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject FIU and its group companies to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without prior notice. FIU reserves the right to make modifications and alterations to this statement as may be required from time to time. FIU does not accept any liability of whatsoever nature for any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising from the use or reliance on the material or information contained herein.

Reach us at:
Singapore: Level 31, Six Battery Road, Singapore 049909 Tel: +65 6321 9123 Fax:+65 6321 9060

London: Level 17 - Dashwood House 69 Old Broad Street London EC2M 1QS UK Tel/Fax: +44 207 256 4062 /4063

India-New Delhi: A-32 Mohan Cooperative Industrial Estate,Mathura Road, New Delhi - 110044 Tel/ Fax: +91-11-4168 3482/3483

India-Mumbai: Level 7 and 8 Vibgyor Towers, G Block C62 Bandra Kurla Complex Mumbai 400051 India Tel/Fax: +91 22 4090 7123 / 7272 Website: www.ficadvisiors.com Email : research@ficadvisors.com

05