Aviation continues to be lousy sector

CNBC-TV18’s Executive Editor, Udayan Mukherjee - It is a terrible time to go mergers and acquisitions hunting, I think Jet Airways has got serious funding problem. I like the confidence that the management exudes but it falls confidence because it’s a sector, which will require large dollops of capital. After looking at what has happened in the last three months in world and in India, I think the sectors that you need to be staying out of and the one’s, which need a lot of capital, precisely that. So Jet needs more debt on its balance sheet.

Anyways balance sheet is not a pretty site, but it will need to load on more debt, which means that its balance sheet will come under pressure. It will need to dilute and it is properly praying that the market conditions improve for it to go out and dilute. So there will be dilution pressure, they will need to raise equity and debt and that’s not easy to come by now days.

So for a capital-intensive sector like aviation that too with other headwinds; look at where crude, what is going on with Aviation Turbine Fuel (ATF). I don’t think Jet’s margins will be a pretty picture, they are saying they’ll make money next year but I doubt seriously whether they be able to make much by way of actual bottomline next year. So for a company, in the next 6 quarters won’t make any money, where there are margin pressures, there are basic revenue pressures because people imagine with what’s going on in the world, may actually choose to fly less and that would be the perception that Jet’s international operations will not do very well. And you have got Jet talking M&A, which requires more capital.

The only thing that can be said for the stock is that the price is half, it was at Rs 1,050 in December and now it is Rs 500 in change, so 50% of the marketcap has already gone. So to an extent, the bad news is in the price. It may not fall hugely from here but this is not the space you need to be going for out performance. It’s a lousy sector, it’s been always and it continues to be a lousy sector. Deccan got excited because of the M&A and that too on the throws of the bull market. But you can also see, what has happened to Deccan, which was Rs 300 and now Rs 100 that happened very quickly after each other.