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Jet flies high on settlement rumours

Deeptha Rajkumar

Analysts remain unenthused; say nothing has changed fundamentally

Mumbai , Sept. 7

Spurred by whispers of an out-of-court settlement, the counter of Jet Airways ended 12.49 per cent higher at Rs 664.70 on the BSE on Thursday. The stock hit an intra-day high of Rs 693. The stock took wing on reports that a group of 1,000-odd travel agents had come together to buy a 30 per cent stake in Air Sahara for Rs 700 crore. An offer, which values the airline at Rs 2,300 crore, the price offered earlier by Jet Airways.

"In the event of a Sahara takeover, there could be an out-of-court settlement between Jet and Sahara, which could see some of the disputed monies flowing back into the Jet kitty," said the institutional head of a leading brokerage. The amount Jet may in turn get is placed around Rs 500 crore.

Analysts tracking the company believe this may just be pure speculation. "When the markets did not factor in the one-time loss, they are unlikely to factor in something that is at best a cash flow entry. Fundamentally nothing has changed," said an analyst.

Fuel cost

A factor that may well provide the company with a much-needed shot in the arm is the decline in international crude oil prices. While there is no denying that the decline would benefit most airline companies, for Jet it would translate into 8-10 per cent reduction in fuel costs for this month and hugely impact margins. Fuel costs for the company is said to be around 30-35 per cent of the total revenue earned.

Some analysts differ and see this as no reason for the sharp flare up in stock price. "The company has levied a total surcharge of Rs 750 per passenger since May this year (May, June, August, September) lifting the average yield by almost 15 per cent. The Rs 750 surcharge is disproportionately high in comparison to the total decline in fuel prices. It may also not cover the cost of a dip in capacity utilisation. From around 74-75 per cent in the first half of this year (Jan-June) capacity utilisation now stands at around 65 per cent. As such the company should not be making money," reasoned an analyst with a leading foreign brokerage.

Exit route?

Post the breakdown of the Jet-Sahara deal, the stock of Jet Airways stood oversold. The run-up in prices could offer an exit route to shorters on this counter. Dealers maintain that a leading bull operator has been pulling up the counter.

The stock ended the day at Rs 664.70 up 12.49 per cent on the BSE. The counter has appreciated by 29 per cent month-on-month and 24 per cent week-on-week.

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