Tuesday 18 September 2012

FDI in Aviation boosts Airlines' stocks

Mumbai, Sep 17 — Scrips of major domestic airlines soared Monday after the government allowed foreign investments by international airlines into domestic airline industry.
Scrip of the cash-strapped Kingfisher Airlines touched its circuit limit of Rs.12.97 or an increase of 19.98 percent and closed at the same level from a previous close of Rs.10.81 on Friday.

The government Friday allowed foreign airlines to invest up to 49 percent in private domestic carriers. The foreign carriers have so far not been allowed to directly invest in Indian carriers for security reasons, although 49 percent FDI by non-airline players was allowed.

The Indian civil aviation sector has been going through a tough operating environment as high fuel and interest costs have hurt it. The government expects that the decision will help bring in more funds to the airlines who have been cold shouldered by banks.

The decision is expected to help airlines like Kingfisher to regain capital and resume full services which were affected due to its bad financial health. Other Indian carriers too require funds for expansion and to gain market share.

Other airline scrips like SpiceJet also closed at Rs.38.60, an increase of 11.88 percent before touching a high of Rs.41.30 from its previous close of Rs.34.50 on Friday.
"SpiceJet is a good buy for international airlines as the airline has very little debt and is in the fastest growing sector which is low cost. So valuation of SpiceJet is going to be very attractive," said Sharan Lillaney, aviation analyst at Angel Broking.

"In Kingfisher's case, they need to recast their debt and restore complete operations for the international investors to develop interest."

However, Jet Airways stocks closed 7.85 percent down as the majority shareholding is shared by a non-resident Indian and foreign investors. Thus, the company will not be able to attract FDI from foreign airlines.

Jet's stocks closed at Rs.360.50 from a day's high of Rs.398.60. The stock had previously closed at Rs.368.35 on Friday.

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