Mallya to pay more for Deccan stake
A comparison between the Jet-Sahara and Kingfisher-Deccan deals clearly indicates that Vijay Mallya spent more in acquiring Deccan, reports Lalatendu Mishra.india Updated: Dec 20, 2007 22:50 IST
A comparison between the two major aviation deals — Jet-Sahara and Kingfisher-Deccan — clearly indicates that Vijay Mallya had to spend more in acquiring Deccan, though some analysts feel the price was worth it.
When Mallya acquired a 26 per cent stake in Deccan in May 2007 for Rs 550 crore, he estimated the enterprise value of Deccan Aviation at Rs 2,200 crore. For picking up the 46 per cent stake Mallya has so far invested close to Rs 950 crore. He would have to pump in additional funds in the days ahead.
On the other hand, Jet Airways chairman Naresh Goyal acquired Air Sahara’s 100 per cent stake for Rs 1,450 crore, which was a 34 per cent discount on the original deal of Rs 2,200 crore. Air Sahara, now called JetLite, is back on its feet and poised to turn profitable in the third quarter of 2008, against a net loss of Rs 600 crore last year.
According to analysts this was the only option left before Mallya. “He has deep pockets and has killed many birds with one stone. Firstly, he brought under control a highly discounted Deccan that created a financial mess by doling out cheap tickets. Secondly, while he can utilise Deccan’s rights to fly abroad, he has also prevented a major investor (Anil Ambani) from entering Deccan and continue the cheap fare regime,” said an aviation analyst. “There is no doubt Mallya had to invest heavily, but it was worth investing.”
“Deccan is now valued at Rs 3,759 crore, while Jet's market capitalisation is Rs 8, 296 crore. Jet is a profitable and much bigger entity as compared to the badly bleeding Deccan with an accumulated loss of more than Rs 1,000 crore,” said an airline official adding “getting the right valuation for the merger could be an issue”.
The merger of Kingfisher Airlines into Deccan Aviation has not gone down well with the stock markets. Aviation stocks closed with losses on Thursday. Deccan Aviation was down by 6.2 per cent to close at Rs 277 on the BSE, while Jet Airways was down by 2.25 per cent to close at Rs 961.