Jet Airways’ shares surged nearly 20 per cent on the BSE on Thursday morning after the Abu Dhabi-based carrier Etihad Airways picked up 24 per cent stake in the airline at Rs 754.74/share for Rs 2,050 crore.
The acquisition price is at a 31.7 per cent premium to Jet Air’s closing share price on Tuesday.
This is part of a $600-million commitment to strengthen the partnership between the two airlines. The current deal values Jet at around Rs 8,500 crore.
However, with no possibility of any open offer, the stock shed some ground from the day’s high.
At 12.55 p.m., the scrip was trading up 11.09 per cent at Rs 637.50. It had touched a new 52-week high of Rs 688.60 before ceding some of its gains.
This could be because the 24 per cent stake sale would not lead to any compulsory open offer to the shareholders.
Hence theoretically, they would not benefit from the stake sale immediately since the price at which Etihad was allotted shares at Rs 754.74 per share was still some distance away.
Performance factor
With the clinching of the deal, it would be performance which would become the deciding factor in the share’s performance, though technically some steam is still left as the rule allows foreign airlines to hold up to 49 per cent stake in domestic airline companies.
Even at current valuation, the stock is pricey.
Net income, net profit
During the quarter ended December 31, 2013, Jet Airways earned a net income of Rs 3,941.39 crore against Rs 3,696.26 crore in the same quarter in the previous fiscal.
But it recorded a net profit of Rs 85 crore in Q3 of last fiscal against a loss of Rs 101.22 crore in the same period in 2011-12 fiscal.
EPS for the quarter was Rs 9.85 (Rs -11.72). Its equity was at Rs 86.33 crore, which would go up because of the preferential allotment of 2.72 crore new shares to Etihad.
FDI in aviation
The investment is the first by an overseas operator in an Indian airline after the Government allowed FDI in aviation sector.
The deal sets a valuation benchmark for further investment in Indian airlines, with budget carrier SpiceJet frequently in the subject of stake sale reports.
Kapil Kaul, regional head of the Centre for Asia Pacific Aviation (CAPA), said Etihad will benefit more from the deal, as this will give the Abu Dhabi-based airline a foothold in the growing Indian aviation sector.
The deal will also be a positive for Jet Airways, the second biggest airline by market share after IndiGo, as this gives it capital and expertise, he added.