Like a teatray in the sky

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In fact, the IPO sold out in 10 minutes flat and was oversubscribed 16-odd times with most of the bidding at the ceiling. If there had been such a thing as a flexible greenshoe option, Jet could have raised far more.

While it holds a dominant position in the domestic market with 45 per cent marketshare and a young fleet (average age 4.5 years) versus Indian Airlines (40 per cent marketshare) and Sahara (9 per cent), Jet isn't exactly the safest of investments at this instant. No airline is.

Fuel prices have been rising continuously and at the same time, in the Indian context, discount airlines such as Deccan have started chipping away at the cosy fare structures Indian operators like. This combination means that airlines are being squeezed from both ends.

In the current fiscal till September 2004, fuel costs have accounted for close to 25 per cent of Jet's expenses "" up from 22 per cent in 2003-04. While Jet intends to maintain a no-discount structure as long as it can, the business is ultimately about bums on seats and that means it may be forced to realign fares downwards. That's a global trend and Jet is going global as well.

Topline growth has been okay; revenues of Rs 3,566 crore in 2003-04 versus Rs 2,942 crore in 2002-03 has been capped by Rs 1,967 crore in the first half of 2004-05.

Cargo growth has been high at 32 per cent over the last three years, but cargo still forms a small percentage (around 5-6 per cent) of total revenues. Cash profits (net plus depreciation) rose from Rs 678 crore in 2003-04 toRs 358 crore in the first half of 2004-05.

Interest charges in 2003-4 were Rs 289 crore and these dropped to Rs 123 crore in the first half 2004-05. The IPO will retire Rs 790 crore of high-cost debt. Interest charges should drop substantially and the look of the balance sheet would definitely improve.

Since Jet is going for capital expenditures of Rs 460 crore, it will probably have a depreciation shelter in the medium-term. All this means Jet would probably remain the market leader but the sector itself could go through a cyclical downturn where nobody makes money.

Jet also has a couple of potential problems due to its peculiar but not uncommon promoter structure. The IPO said baldly that there were "no assurances" that promoter-group companies may not take decisions that favour promoters over other shareholders.

The ticketing and cargo-handling is done by Jetair, a private limited company controlled by chairman Naresh Goyal. The brandname is owned by yet another Goyal-controlled entity, Jet Enterprises. Goyal will hold 80 per cent in Jet after the IPO.

Brand transfer-pricing, ticketing commissions etc could all cause potential conflicts of interest. The stock's due to be listed by March 14 and given the current conditions, it's likely to shoot up. One can make an excellent case for cashing in on the lottery ticket of allotment.