FDI-fuelled Airline Stocks Gain Altitude Since Sept

Shares have gained close to 50% since September and may attract interest for some more time 

Aviation sector shares have reaped a windfall since mid-September last year after the government allowed foreign airlines to buy up to 49% stake in domestic airlines. Shares of aviation companies have since gained between 37% and 65%.These stocks are likely to attract demand in the near-term,said analysts,who anticipate these counters to witness heightened investor activity over the next few weeks.

The Jet Airways stock has gained 65% to.606.85,SpiceJet rose 37% to.47.3 and Kingfisher Airlines saw a 40% rise in the stock since September 14. Removing the restriction on investment by foreign airlines would help attract strategic investments into the Indian aviation sector,which was until then limited to participation by nonairline investors.Jet Airways is the first company to have commenced negotiations with a foreign airline,UAEs Etihad,for a stake sale.While the company and Etihad are in a discussion regarding a potential investment by the latter in the former,these discussions have commenced recently,pursuant to the liberalised FDI policy,which permitted foreign investment in the shares of an Indian airline, the company said in a filing to the exchanges on Thursday.Following the announcement,Jet Airways shares rose over 4.7% to.606.85 on Thursday.

The discussions are in progress,but no terms have been firmed up at present.Various structures are being explored by the legal and commercial teams and care is being taken to ensure that all the Indian regulatory requirements are fully complied with, the company said in a statement.Most Indian airline companies are in dire need of capital to reduce their huge accumulated losses and mounting debt levels,caused largely by competition induced price wars and rising fuel and capital costs, Edelweiss had said in a recent note.Experts feel that aviation stocks may be re-rated as demand has been picking up,resulting in improvement in profitability and valuations.The outlook for the aviation sector has turned positive following an improvement in demand and pricing environment,flexibility to import ATF / hedge ATF purchases and finally the approval for FDI, said Sharan Lillaney,aviation analyst,Angel Broking.Allowing FDI has turned the bearish tag into bullish and lifted the market sentiment, he added.

At the end of FY12,Jet Airlines held accumulated debt of around.12,128 crore on its books.Jets reserves and surplus eroded to.44.6 crore in FY12 from.1,540 crore in FY11. Further,Jet Airways has to divest at least a 5% stake by June 13,2013 to ensure at least 25% public float in the company as per the capital market regulator Sebis requirement. Indias biggest listed carrier will pay $600 million of debt in the year ending March 31,and seek rupee loans with interest rates as low as 10%,chief financial officer Ravishankar Gopalakrishnan said recently in a conference call.Kingfisher Airlines,which has been forced to suspend its operations by DGCA,is on the verge of bankruptcy.Of the listed airlines, SpiceJets balance sheet is perhaps the healthiest,with the company holding a debt of just over.1,000 crore as on March 31,2012.Given SpiceJet's industry positioning and strong balance sheet,it would be a prime target for any international airlines looking to gain a strategic foothold in India,one of the fastest growing aviation markets in the world, said Motilal Oswal in a recent report.