The week ended on a good note for the government. Air India, exhibit A of why government should not be in business, was sold to the Tata Group. The government has managed to get rid of an asset that became synonymous with the term ‘a drain on the exchequer’. Ratan Tata fulfilled his dream of bringing the airline back home, hopefully, for good now and it bolsters the group’s profile in the aviation industry.
Of the two, the government will surely sleep in peace, knowing that all it has to do now is figure out a way to deal with the Rs 46,000 crore of debt that remains, with assets worth only Rs 14,700 crore to offset this liability. On its way out, Air India has delivered a one-time hit to the exchequer, but it’s a small price to pay.
But the Tata group has its task cut out. Running an airline is an uphill challenge under normal circumstances. But Air India’s weak balance sheet means it will require a funds infusion to shore up net worth and provide liquidity for operations. Much depends on the Tata group’s business plan and everyone will be watching its next moves.
Just how weak Air India is can be seen from the price paid to acquire the airline -- an enterprise value of Rs 18,000 crore. This was split between acquired debt of Rs 15,300 crore and an equity value of Rs 2,700 crore. This was for a company with Rs 27,711 crore of revenue in FY20, the latest year for which data was available.
The government said Air India is incurring a daily loss of Rs 20 crore or Rs 7,300 crore a year, marginally lower than the loss of Rs 7,776 crore it incurred in FY20. IndiGo, which reported Rs 35,756 crore in revenue and a net loss of Rs 2,337 crore in FY20, is trading at an equity value (market capitalization) of Rs 75,500 crore. That’s the valuation bump that the Tata Group will be hoping to get if it manages to turn around Air India. One aside from this episode could be TCS’s shareholders benefiting from dividend payouts.
Even if not for the Air India sale, this has been an eventful week for investors. An unexpected shortage of energy sources continues to cause an upheaval in several countries. Add to this supply chain disruptions and raw material shortages, and it’s a chaotic time to be in business. A domestic coal shortage in India continues to be a cause for concern. But within this chaos, there are opportunities available for investors. This week too, we are keeping track of these and more issues for readers.
Here is a selection of articles written for Pro subscribers from the week that went by:
On the energy and supply chain disruptions
The coal crisis can be a blessing in disguise
The chip shortage affected automobile output in September but October could be different
The winning and losing stocks from the coal crisis and what it means for cement companies
With China’s chemicals output getting hit by a power shortage, what’s in store for Indian ones
NTPC’s plans to list its green units and also how it’s placed much better on the coal shortage front
Natural gas: Which companies will feel the pinch of soaring global prices?
Short squeeze joins short supply in keeping natural gas prices higher
We wrote about why Invesco was not backing off despite the Sony deal and also concluded that markets are really cruel when it comes to promoters who are down on their luck.
The global electric vehicle revolution is here and Bajaj Auto is getting an equity stake in a foreign JV in order to benefit from it
Seven stocks to play the EV opportunity in India
Climate concerns to play a key role in India’s future trade pacts
Will Japan’s new PM take risks to counter China?
The bull case for investing in China
The online gaming conundrum
Drastic drop in inventory signals strong housing cyclical rebound
Why investors should seriously look at large-cap IT stocks AND What’s in store for IT companies in the September quarter?
What’s the update from Marico and Godrej Consumer Products and why does it seem like FMCG companies are switching gears on the performance front?
Another consumer company Titan is regaining its glow
Companies and investing insights:
BSE: Well placed to benefit from rising equity markets
Weekly Tactical Pick: Minda Corp
IRCON and RVNL: A merger that can create value for all stakeholders
Vesuvius India: A play on rising steel output
Oyo’s draft prospectus is here, what did we find in it?
Discovery Series: Sirca Paints India trading at a discount to peers
Is the worst over for Equitas SFB?
On the economy and policy front
Why the mood turned better on the sovereign ratings front
We expected the Monetary Policy to retain status quo, and while it did take baby steps towards withdrawing its ultra-easy policy we wondered if the MPC should have been more decisive.
A non-monetary policy topic: Will crypto-currencies be Kryptonite for central banks?
Srei's board was superseded by the RBI
Sebi roots for lower income high net worth individuals applying for IPOs!
Index options in commodities will be a game-changer for MCX
Raising consumption expenditure is the magic bullet
Economic Recovery tracker: weekly indicators are flashing red
Monsoon Watch 2021: India pulled a normal rainfall out of the jaws of a deficit
Herd Immunity Tracker: Focus shifting towards vaccination of children (Also, a COVID-19 drug raises hopes of supplementing working alongside vaccines to contain COVID-19.)
Finally, here’s a weekend read on how BlackRock’s Larry Fink turned it into a $10 trillion asset manager, republished from the Financial Times.