The stock market on Friday may have given a thumbs down to the Kingfisher Airlines and Deccan merger announcement, but it was on expected lines said analysts. Baring routine corrections, they said aviation stocks would gain momentum with several positive developments being on the cards.
“Though into losses, the Kingfisher Airlines stock replacing Deccan is a positive indicator as some glamour would be attached to this. Airlines would witness improved yields as fares are on the rise. SpiceJet would also be profitable in 2008, ” said Alok Churiwala, MD, Churiwala Securities.
According to experts, an airline at the most can make a profit of 5 per cent, compared to 25 per cent by a telecom company
“By the time Air India launches its IPO next year, most of these stocks, including that of Jet Airways, should appreciate,” he added.
In its latest report, broking firm Prabhudas Lilladher has recommended a price target of Rs 1,479 for the Jet Airways stock. Predicting robust years ahead for budget carrier SpiceJet, it has recommended a price target of Rs 84.
“With strong demand growth the onset of rational pricing behavior and the fact that the airline industry had under-performed the Sensex by 19 per cent in last 18 months, we expect valuations to improve. SpiceJet is expected to post a 64 per cent rise in its revenues for three years upto 2010, with a net profit of Rs 76 crore in FY10E,” the report said.
Though JetLite would continue to incurr losses for some more time, Jet Airways should make profit on a standalone basis. The otherwise dormant Deccan stock started appreciating since Vijay Mallya showed interest to pick up a strategic stake in the airline. The Deccan stock appreciated by more than double in the past month before tanking recently.
“The market has its own way of functioning. It buys on rumours and sells on news to book profit. The same thing happened when the Deccan deal was made public. The market knew it well in advance,” said an analyst, adding “now investors will concentrate on hard numbers”.
Aviation is a capital-intensive business and returns are not that high. It attracts investors who understand the reality, while retail investors normally stay away. According to experts, an airline at the most can make a profit of 5 per cent, compared to 25 per cent by a telecom company.
With air travel in India set to grow by 16 per cent year-on-year, airlines with prudent revenue management are likely to make a difference.