Jet, SpiceJet shares Soars on Etihad Deal as brokers turned bullish on aviation

MUMBAI: Shares of airline companies such as Jet Airways and SpiceJet rallied nearly 20% on Thursday after NareshGoyal-promoted Jet Airways agreed to sell 24% stake for Rs 2,050 crore to Abu Dhabhi's Etihad, at a 31% premium to its last traded price.

Brokerages have turn bullish on airline stocks as many said the debt-laden airline companies will now be able to reduce its debt significantly and return to profitability with fresh infusion of capital from foreign carriers.

"The deal is critical to the company as the cash infusion of Rs 2,050 crore will trim its debt and will change its strategy for international business," Jamshed Dadabhoy, an analyst from Citi, said in a note to its clients.

"If Abu Dhabi becomes the new airport hub for the company, then it can effectively utilise its 777 fleet to the United States, a critical market from which Jet has almost withdrawn due to high cost.''

The passenger carrier can also source fuel for its international long-haul operations, from same location, thereby saving fuel cost," Dadabhoy added. The brokerage, owned by Citibank, revised its target price to Rs 766 from Rs 545.

nalyst says a reduction of debt by Rs 2,050 crore can save the airline anywhere between Rs 190 crore and Rs 200 crore a year on its interest paid to lenders. Jet owes lenders Rs 13,000 crore. Shares of Jet Airways surged 20% in early trade, before giving up some gains to close at 52-week high of Rs 635, up Rs 61 or 10.69%.



"The Jet-Etihad deal has happened in line with our expectations , we continue to maintain our one year forward target price of Rs 710," Rashesh Shah, analyst at ICICI Securities, said in a note. "However, in short-term we advise investors to book profit at current levels."

"We believe the deal is beneficial to both the airlines, as it would not only give Etihad a bigger platform in India, but also provide Jet Airways with much needed cash to retire its high debt, pricing power led cost savings, and an enhanced network with synergy benefits ," Shah added Some brokerage houses raised its target price to Rs 790 a share, Rs 35 higher than Etihad intends to pay to Jet.

Brokerage IIFL has set a target of Rs 790 per share. India's third-largest low-cost carrier SpiceJet too surged 18.24% or Rs 5.70 close at Rs 36.95 on hopes that it would partner with foreign carriers. Marans, the SpiceJet owner, had been raising their stake in the low-cost carrier to 52.14% by purchasing shares from the market and converting debentures to equity shares.

"This clearly give markets enough confidence to guess, that a deal is brewing," said Mumbaibased fund manager at a leading brokerage house, who did not want to be quoted. The main promoter of Spice-Jet , Kalanithi Maran, has increased his stake by nearly 6% to 22.05% from 16.27% following conversion of convertible debentures into equity shares, according to regulatory filing to the stock exchange.