Jet-Etihad stake sale will be base for future deals: Angel

Welcoming the latest development in the Indian aviation space, Sharan Lillaney, analyst, Angel Broking says the Jet-Etihad deal will benefit other aviation players too. The valuations of the deal, according to Lillaney, will become a base for others to follow.

"For that matter, (even) SpiceJet, Indigo, GoAir will all get this kind of valuations if somebody is interested to invest in these companies," adds Lillaney in an interview to CNBC-TV18.

Jet Airways today finalised the deal with Etihad and will sell a minority stake to the Abu-Dhabi based carrier for Rs 2060 crore. Jet will sell 27.3 million shares at Rs 754.74 each on a preferential basis to Etihad.

For investors interested to allocate their funds in the aviation space, Lillaney recommends SpiceJet as a potential performer stock.

Below is the edited transcript of Lillaney’s interview to CNBC-TV18.

Q: What is your view on the valuations that have been given- Rs 754 for the preferential allotment and how do you see the stock open tomorrow?

A: We have always been positive on Jet Airways. We expected the deal valuation  to be around Rs 700-800. It is a very positive deal and except for a few procedural issues, the deal could have happened earlier itself.

I expect the stock price to open at a circuit tomorrow because the valuation is at a significant premium to the current market price. So, it is expected to open at 20 percent circuit or 10 percent whatever the circuit filter is for the stock.

Q: How do you see the game change now for the entire sector because you have a formidable player entering the market. They already have a code sharing agreement but now in terms of market share, game changer etc, how do you think things will progress?

A: Things are definitely positive for Jet Airways. They can reduce their debt, they can utilise money for further expansion. They can connect to more international routes with the help of Etihad. So, this will significantly help Jet Airways to improve its international exposure and Etihad can also benefit from India’s domestic market. For the whole aviation industry as such, this will become the base of valuation for all companies. For that matter, Spicejet, Indigo, Go Air will all get this kind of valuations if somebody is interested to invest in these companies.

Q: Would you have a recommendation on Jet Airways now? Or has it run up too much in anticipation of this deal to sort of buy into it at this level?

A: If a company is giving a valuation of Rs 750, they definitely see this kind of value for the company. So, if one gets the chance he can enter at around Rs 600-610 levels. If  one can’t get into Jet, Spicejet is a better option right now to invest in expecting their position to improve in the future.

Q: What could the fair value be of Jet Airways right now after this deal?

A: The fair value of Jet given their fundamentals would be around Rs 620 but obviously you will get a premium because Etihad is investing in the company for life and not for very short-term.