Stocks

IndiGo IPO cheers peer stocks

Priya Kansara Mumbai | Updated on January 23, 2018

20blSpiceJetC.eps

20bljetairCo.eps

Q1 results, lower ATF prices also boost sentiment

Shares of listed aviation companies Jet Airways and SpiceJet have taken off since July 1, the day IndiGo announced its near ₹3,000-crore initial public offering (IPO). While Jet’s share price has jumped about 49 per cent, SpiceJet’s stock price has nearly tripled during this period.

Lower fuel prices help

On Monday, when IndiGo — among the few profitable domestic airline companies — held its road-show in Mumbai for its IPO, the Jet Airways stock soared with a gain of 8.8 per cent while SpiceJet touched the 10 per cent upper circuit limit. While the former closed the day at ₹417.30, the latter at ₹47.55, which is also its year-high figure.

Jet Airways registered its 52-week high at ₹543.50 on February 2.

Turnaround in the financial performance due to lower crude oil prices and cut in aviation turbine fuel costs in the last quarter have also acted as positive triggers.

In Q1, Jet Airways and SpiceJet reported profit on an adjusted basis, compared to losses incurred in the same quarter last year.

This comes on the back of drop in aviation fuel prices. For Jet, aviation fuel prices declined 20 per cent, while for SpiceJet it fell a sharp 54 per cent.

According to data available on Indian Oil Corporation’s website, ATF prices were slashed by around 9.5 per cent since July.

Re-rating

Market experts expect share prices of the two companies to continue gaining momentum as long as ATF prices remain benign.

“The fall of ATF prices is an important factor in the rerating of the companies as they have been able to make profits for the last two-three quarters. However, it is difficult to say whether it will be sustainable,” said the head of research of a brokerage firm, which is one of the investment bankers for the IndiGo IPO.

Sandip Sabharwal, an independent investment analyst, sees value in Jet Airways compared to IndiGo. He feels that most of the positives are priced into IndiGo’s minimum ₹250-billion market capitalisation or a valuation of 8.5 times enterprise value to earnings before interest, depreciation and taxes (EV/EBIT).

Jet Airways with a market capitalisation of roughly one-fifth of IndiGo’s at ₹4,737 crore is also trading at a similar valuation of 8.5 times EV/EBIT and provides value at current market prices as the company is expected to retire debt in the next few years and is also working on operating efficiencies.

SpiceJet is trading at a premium valuation of 12-14 times and is seen richly priced, said analysts.

Published on October 19, 2015

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