Shares of Jet Airways Ltd, which flew into turbulence yesterday with the stock losing about 11 per cent after the company had announced the exit of its CEO, appears to have stabilised today though the market itself took a plunge.
While the continuous fall in the share’s price since the deal was announced might be unnerving to the investors, an airline analyst of Mumbai’s Angel Broking does not expect Etihad to seek to rework the share purchase price because of its plunge.
It was on April 24 that the board of directors of Jet Airways (India) Ltd approved the preferential allotment of 2,72,63,372 equity shares of Rs 10 each to Etihad Airways at a price not less than Rs 754.7361607 (including premium of Rs 744.7361607 per share) per share. The share allotment was subsequently approved by the shareholders also at the AGM held on May 24.
Naresh Goyal, Chairman of the airline, in his speech at the AGM, said Etihad Airways PJSC had on April 24 agreed to invest in Jet Airways Rs 2,058 crore (approximately) through its share subscription. He said this would help the company "deleverage and grow with renewed vigour into a more sustainable, competitive and profitable airline".
But within a short span of about six weeks, the stock has lost nearly 40 per cent. After touching a yearly high of Rs 687 on April 25 after the deal with Etihad was announced, it slipped to a low of Rs 385 today, losing about Rs 300 in a span of about six weeks.
Responding to queries from Business Line , Sharan Lillaney, Research Analyst-Aviation, Angel Broking, Mumbai, said the sharp increase in Brent crude price and decline in rupee value would have a negative impact on the performance (of the stock) in the short term. But he felt that the "long term fundamentals are still in place" and he expected a bounceback once Jet Airways closed the deal with Etihad and started new flights in alliance with Etihad.
On whether the sharp fall in the value of Jet Airways stock since the stake sale announcement may lead to a renegotiation of the purchase price, he said the deal with Etihad is "more or less completed" and the current share price "will not have any impact on the deal or the price at which the deal has been done".
Lillaney said Etihad’s partnership with Jet Airways was for the long term and "any short term impact on the share price or the business" would not lead to reconsideration of the deal. He pointed out that India was one the fastest growing aviation markets globally and an opportunity to grab a share of it "cannot be left just because of short term share price movements".
Questioned whether other foreign airlines eyeing a share of the Indian airline companies might have a rethink on the price they might pay, he said any foreign airline looking for an investment opportunity would have a long term perspective rather than a short term view. The aviation sector provided immense opportunity and airlines such as SpiceJet were in an excellent position to "get a partner similar to Jet Airways at a significant premium to their current market capital".
On whether its dollar denominated debt would put pressure on Jet Airways because of rupee depreciation, Sharan Lillaney said Jet’s 60 per cent operational revenue was from International operations that acted as a natural hedge against rupee fluctuation. He said the fund flow from Etihad would help Jet Airways to cut its dollar denominated debt. Even if its debt size was large (Rs 12,000 crore) it would have an impact in the very short term only on the interest outgo and not on the total debt to be repaid by it.
On the growth of the airline market during this fiscal, he said the whole aviation sector might grow around 6-7 per cent in terms of passenger traffic. However, the current two quarters might be difficult because of the sharp depreciation of the INR and the simultaneous increase in Brent crude prices which will push up fuel prices.
Jet Airways stock finished down 0.11 per cent at Rs 403.20 on the NSE after touching a low of Rs 385 earlier. The stock had lost about Rs 50 yesterday. It was reported that the Parliamentary Panel headed by CPM leader Sitaram Yechury had allegedly raised objections to the four-fold increase in bilateral air traffic rights given to Abu Dhabi reportedly to sweeten the deal between the two airlines.