Aviation Sector Shares Soar as Foreign Investment Restrictions Ease

Strategic Insights -

India's aviation sector has seen a significant surge in share prices since mid-September last year, with companies like Jet Airways, SpiceJet, and Kingfisher Airlines experiencing gains of up to 65%. This is largely attributed to the government's decision to allow foreign airlines to buy up to 49% stake in domestic airlines, which has attracted strategic investments into the sector. Analysts predict that these stocks will continue to attract demand in the near-term, with Jet Airways being the first company to commence negotiations with a foreign airline, UAE's Etihad, for a stake sale.

Key Takeaways:

  • Jet Airways shares have gained 65% to Rs 606.85 apiece since mid-September last year.
  • SpiceJet rose 37% to Rs 47.3, and Kingfisher Airlines saw a 40% rise in the stock since September 14.
  • The government's relaxation of foreign investment restrictions has attracted strategic investments into the aviation sector.
  • Most Indian airline companies are in dire need of capital to reduce their huge accumulated losses and mounting debt levels.
  • Edelweiss notes that these losses are largely caused by competition-induced price wars and rising fuel and capital costs.
  • Experts believe that aviation stocks may be re-rated as demand in the sector has picked up, resulting in improvement in profitability and valuations.
  • Sharan Lillaney, aviation analyst at Angel Broking, attributes the improved market sentiment to the government's approval of FDI.

Statistics:

  • Jet Airways shares have gained 65% to Rs 606.85 apiece since mid-September last year.
  • SpiceJet shares rose 37% to Rs 47.3.
  • Kingfisher Airlines shares saw a 40% rise in the stock since September 14.
  • Jet Airways accumulated debt is around Rs 12,128 crore.
  • Jet Reserved and surplus eroded to Rs 44.6 crore in FY12 from Rs 1,540 crore in FY11.
  • Kingfisher Airlines has been forced to suspend its operations by DGCA.
  • SpiceJet's balance sheet is relatively healthy, with the company holding a debt of just over Rs 1,000 crore as on March 31, 2012.

Sources:

  • An Edelweiss note on the aviation sector.
  • Sharan Lillaney, aviation analyst at Angel Broking.
  • Jet Airways' filings with the exchange on Thursday.
  • Sebi's requirement for at least 25% public float in the company.