Jet-Sahara deal may strain profitability of Jet Airways | business | Hindustan Times
Today in New Delhi, India
Jul 26, 2017-Wednesday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Jet-Sahara deal may strain profitability of Jet Airways

Sahara’s market share has come down from 13 per cent odd when the deal was first announced in January 2006 to 8 per cent today.

business Updated: Apr 10, 2007 22:57 IST

Jet Airways’ second attempt to buy out Air Sahara may see investors hammering the stock on Wednesday. "At current valuations (Rs 2000 crore), we believe the merger would strain the profitability and the balance sheet of Jet Airways in the near to medium term, before the airline could realise the benefits arising out of the synergies," said Surbhi Chawla, research analyst, Angel Broking.

Sahara’s market share has come down from 13 per cent odd when the deal was first announced in January 2006 to 8 per cent today. "It is an expensive deal, and not a sensible acquisition strategy. Jet should focus on international operations and right-size domestic operations, where it is losing share," said Kapil Kaul, CEO Indian sub-continent for the Centre for Asia-Pacific Aviation, a Sydney-based airline consultancy. Experts feel Jet may not be a strong position on its legal case with Sahara, which is forcing it to buy Sahara.

Even industry experts feel the deal is expensive. "It’s cheaper to build market share than buy," said a CEO of budget carrier on the valuation of the deal. "Though the current indicated deal size is lower than earlier offer of Rs 2200 crore Jet agreed to pay for Air Sahara, the overall competitive environment hasn’t improved. Jet Airways, which so far was unscathed from the same, has started feeling the pressure of same," added Angel’s Chawla.

On a day the markets remained timid, shares of Jet Airways exhibited high volatility on Tuesday’s trade before closing almost flat. Opening the day's trade at Rs 644.85, Jet shares hit an intra-day high and low of Rs 670 and Rs 638.15, before closing the day with a gain of 70 paise at Rs 644.85. The scrip has gained Rs 102.75 or 18.95 per cent from its month-ago price.

Jet Airways, which debuted the bourses on March 14 at Rs 1211, slipped below the Rs 1000-mark on closing basis in April 2006 never to retrace.