Jet Airways recently announced a deal with Abu Dhabi's Etihad Airlines based on which Etihad will buy 24% stake in Jet. It will also make additional investments in order to get some slots at Heathrow and frequent flier program.
Jet will issue 27,263,372 equity shares to Etihad at a price of Rs.754.74 totalling Rs.2,057 crores. That should make Jet worth about Rs.8,600 crores. Is it really worth that much? If you were in November 2010, you would have said that it could be. But we are in 2013 not 2010.
Immediately after the issue, the promoter holding should come down from 80% to about 60%; LIC, Platinum Asia Fund and Birla Sun Life Frontline Equity Fund (other major shareholders) together would own about 4%, down from 5.23%. So effectively it will be Naresh Goyal and James Hogan show going forward.
With over Rs.10,000 crores debt, Jet has its challenges already. The latest announced results for December 2012 quarter have shown a profit of Rs.85 crores from Rs.4,200 crores revenue. This was the best quarter compared to the several previous quarters (which showed losses). Even for December 2012, operating margin of 7%, net margin of 2% and Rs.250 crores of finance costs are more telling.
The future plans appear to be grand with expansion of capacity, taking advantage of Etihad management skills and possible exposure to more international markets. However, what remains a fact is that Jet is operating in a business that is inherently more risky than many other. High capital needs, uncertain revenues and uncontrollable fuel costs are a few of the business risks.
Jet commenced operations in 1993 and currently it is India's second largest airline in terms of market share and passengers carried. It has about 122 fleet in service and about 40 more fleet in order. Just have a look at its latest annual balance sheet (March 2012) and see its retained earnings, which are the cumulative earnings less any dividends paid to date. It appears that dividends have not been paid since 2007. I don't see much of earnings there.
Even if Rs.2,000 crores realized from share issue are used to reduce debt, the remaining debt would still be in excess of Rs.8,000 crores. Well, that is far in excess of the current market value of Rs.5,500 crores.
Jet commenced operations in 1993 and currently it is India's second largest airline in terms of market share and passengers carried. It has about 122 fleet in service and about 40 more fleet in order. Just have a look at its latest annual balance sheet (March 2012) and see its retained earnings, which are the cumulative earnings less any dividends paid to date. It appears that dividends have not been paid since 2007. I don't see much of earnings there.
Even if Rs.2,000 crores realized from share issue are used to reduce debt, the remaining debt would still be in excess of Rs.8,000 crores. Well, that is far in excess of the current market value of Rs.5,500 crores.
This current market value is a result of that sharp run up that has taken place in anticipation of too many good things happening to Jet after the deal.
The stock price has almost doubled in the past 6 months; that is about Rs.2,500 crores increase in market value. Really, the public exuberance has no limits. Rather is that Etihad's?
I like to travel Jet anytime compared to the other airlines. That I am sure, no buts here.
I like to travel Jet anytime compared to the other airlines. That I am sure, no buts here.
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