The airline gets an opportunity to clean up its balance sheet as the holiday season travel brings cheer to the sector.
After over three months in limbo (FIPB approvals came much earlier), the CCEA approved Jet Airways’ proposal of raising $400 million through a qualified institutional placement. The equity raised will give a funding leg-up to the cash-strapped airline, which had a net debt-equity ratio of over 7 as of March 31, 2009.
The current consolidated debt levels have, however, improved to $3.2 billion following some repayments. With cash on books of about $180 million, net debt-equity is down to about 4.25. The fund raising will further lower it to 2.7 levels though it represents an effective equity dilution of about 40 per cent assuming its fortnightly average price of Rs 560.48. However, further details are awaited.
The breather comes on the heels of an improved business environment and higher passenger traffic in an era of stable fuel prices. The expected seasonal highs have buffeted hopes that the airline will break-even this quarter after seven quarters in the red. Domestic passenger traffic was up 33 per cent year-on-year to over 7.6 lakh revenue passengers and international traffic was up 19 per cent. Seat factors (ratio of occupied seats to available seats per kilometer) have improved 14 per cent year-on-year domestically to 72 per cent and 18 per cent internationally to 82 per cent.
The trends seem to indicate that yields (ticket pricing) are holding up well with most carriers having rationalised capacity in the last year and focusing on the bottom-line over market share. Notably, the era of cheap air tickets seems to be over for the present. Jet’s management, too, expects domestic yields to improve about 10-15 per cent from the trough seen in September quarter.
The stock has performed phenomenally with 230 per cent returns in the last year and has outperformed the Sensex by about 26 per cent in the last month although it had dipped in the interim. Post the approval, the stock closed up 2 per cent at Rs 553. It trades at a price-to-book valuation of about 3 based on consensus analyst 2010-11 estimates.
The run-up has left the stock looking quite pricey and analysts believe that there seems to be limited head room from these levels.
