Kingfisher Airlines : Why to Play?

27/03/2011 02:49

Presently company is poised for a structural change which would trigger its share price to a level of nearly Rs. 70/-, appreciation of 90% from its present level of Rs 41/-, in the coming days.  


As a sector, we cannot think of a country without aviation and Kingfisher is one of the major players in the sector in India.  Rather, the sector is bound to grow at a frenetic pace.  According to the Centre for Asia Pacific Aviation, domestic rates will expand at 14.8 per cent CAGR through 2020.


As regards to Promoters, they are well known for there professionalism and can play a key role for a favorable deal.


Kingfisher’s net loss in the first half of 2010-11 came down to Rs 230 crore, from Rs 419 crore in the same period the previous year. This was expressed with signs of recovery of the company since it bought low-cost carrier Deccan Aviation in 2007 and got the approval for a CDR package.


The centralized issue now is its corporate debt restructuring package followed by GDR. The Centre for Asia Pacific Aviation feels that a complete recovery from the turbulence of the last couple of years will still take time for the aviation sector. It will be difficult for Kingfisher to start repaying its recast loans.  The new terms of the restructuring, approved in October 2010, include part conversion of debt into equity and a lower interest rate. Both lenders and promoters will pick up equity at a substantial 64% premium to its current market price as per SEBI formula by March 31 if the company keeps its commitment on timelines earlier agreed upon. In terms of the pricing for the GDR issue, this could be in line with the debt-conversion price.  In case the plan goes through, all the 18 lenders will have the acquisition price of a share is nearly Rs 65, which would compel them to bring down their holding price by acquiring more shares to avoid huge Mark-to-Market loss in their balance sheet  in forthcoming June quarter.  These activities will propel the market price of share to as high as Rs 70.  Moreover, to avoid a loan account from becoming NPA, this will put pressure on lenders to agree upon the plan to goes through.


The major threat is crude.  However, the crude threat is glooming over the entire sectors and in case we experience upward trajectory of crude, it will be a gloom phase over all the sectors.  And, those who will pass the cost to their customers, they will be winner.  Under those circumstances, kingfisher can easily pass the cost due to its premium class of customers and weakening of rupee effect on foreigners.  But the dilution of equity base by promoters is not a good sign from investment point of view.