Financial Daily from THE HINDU group of publications
Tuesday, Feb 14, 2006
Logistics - Airlines
Jet Air stock sheds Sahara deal gains
Tunia Cherian George
Mumbai , Feb. 13
IN contrast to the market that has been touching new highs over the past month, the Jet Airways stock has been bogged down by a variety of factors: the financial performance results announced recently, the overall environment in which the company operates and the aggressive listing price of Rs 1,100.
The stock today closed at Rs 943.05 on the Bombay Stock Exchange. This represents a 17-per cent drop since January 1.
While the takeover of Sahara on January 19 was initially welcomed by the market and the stock gained Rs 21.20 to end at Rs 1,149.90 (on that day), the gains quickly evaporated.
Analysts say the deal has both positive and negative triggers for the stock.
A research head of a broking company said the acquisition of Air Sahara would require the airline to shell out some of its own funds. There may also be some equity dilution over the next few months.
According to another analyst, while the buy-out would have some negative impact on the financial side, it has positive triggers on the operational and business side for the airline.
"The performance of the Jet Airways stock is a function of the company's own performance in the recent past as well as the overall environment in which it is operating," said an analyst with an international consulting firm.
"On the one hand, it has to live with fuel prices, which are ruling strong at over $60 a barrel, and on the other, its yields and market share have come under pressure from the low-cost carriers," he said.
Over the past year, the airline's market share has dropped from nearly 45 per cent to stand at 36 per cent currently. Net profit in the third quarter dropped by nearly 53 per cent.
He adds that the stock listed at Rs 1,100, which was a steep price. "Though the share was over-subscribed at issue, investors now realise that the airline is not insulated from market forces," he said.
According to the broker, the international operations of the airline were bleeding the company, with fuel prices at record highs.
Taking a call on the future course of the scrip, he says investors would wait and watch how the stock performs at the current levels and the earnings potential at these levels.
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