Got $500 million Take over 3 airlines promoters

Written by Nirbhay Kumar | New Delhi | Updated: Nov 18 2011, 08:41am hrs
If you have $500 million lying around, you could buy out promoters of all three listed airlines in India. Stocks in the beleaguered aviation sector are available at an unprecedented discount to any investor, as market capitalisation of Jet Airways, Kingfisher Airlines and SpiceJet hit fresh lows (see table). Promoters stake in these airlines stand at 80%, 58.61% and 38.60%, respectively, adding up to R2,746 crore or $500 million.

The decline in their market value comes at a time the government is thinking of allowing foreign airlines to buy up to 24% or 26% in domestic carriers. Currently, though foreign direct investment in the aviation sector is 49%, foreign airlines cannot apply.

The last year has seen a major fall in the market cap of airlines. The stock of Jet Airways, the country's largest private airline, closed at R243 on the BSE on Thursday, just a fourth of its November 2010 peak of R926. SpiceJet's shares closed at R22 against R97 of last November. The Kingfisher scrip, which had peaked at R90 last November, on Thursday closed at R24.95.

All three airlines have posted losses in the first half of this fiscal. While Jet reported a R836-crore loss, Kingfisher and SpiceJet posted R732 crore and R312 crore, respectively. Analysts said the losses for the full fiscal will only rise; so, there's little chance of their market cap rising in the near future.

Aviation advisory firm Centre for Asia Pacific Aviation (CAPA) India has estimated losses of the domestic airline industry at Rs 15,000-20,000 crore in the current fiscal.

This figure includes figures from unlisted airlines like Air India as well.

However, analysts point out that while valuing a company, several parameters other than market cap are taken into account.

Market capitalisation does not truly justify the value of a company. Kalanidhi Maran of Sun Network bought SpiceJet at Rs 47 per share while it was trading at Rs 22, said Sharan Lillaney, research analyst at Angel Broking.

An official of a leading airline said though market cap of a company is an indication of its value, it cannot be the sole determinant for valuing it if an investor is interested in buying a stake. Future cash flows and business prospects play a vital role.

He said airline stocks are currently undervalued, since the perception is that the industry is sick and is unlikely to make profits in coming quarters.

Ankur Bhatia, executive director of travel technology service provider Bird Group said that aviation is a long-term business and hence, future air traffic growth would be a key factor in determining the value of an airline.