SpiceJet can test Rs 60: SP Tulsian

SpiceJet can test Rs 60 or so in next six months, says SP Tulsian, sptulsian.com.

Tulsian told CNBC-TV18, "If you see the aviation sector we have been hearing for last couple of months that Etihad is a serious buyer and they are zeroing in on either Jet Airways or Kingfisher Airlines, but since no development is seen in Kingfisher Airlines now the news reports are coming in that maybe by month end they should be able to conclude the deal with Jet Airways as a strategic investor in that company."

He further added, "I think that will really be a big trigger, because that will flag off the valuation for all the Indian aviation sector and whatever we have been hearing, whether that happens 26 percent for USD 330 million or around that will give a valuation of close to about Rs 25,000 crore for Jet Airways including the debt of Rs 12,000-13,000 crore, the suppliers’ liability of about Rs 4,000-5,000 crore and the market cap of about Rs 8,000-8,500 crore. So that will really be seen as a big trigger."

"Now the question will come that who other remain as the potential acquirer or maybe the strategic investor where they can bring in and two companies remain that is Kingfisher Airlines and SpiceJet. Since no developments has really happened in Kingfisher Airlines in terms of the debt repayment and all that, though Qatar Airways has denied that they are not in talk with SpiceJet, but SpiceJet has clearly said that yes, they have been in talk with some of the gulf carriers and some of them are interested in acquiring the stake in the company."

"If you really see the structure of the company, they have 17 percent market share, 47 aircrafts, 39 destinations. So they have a good market and once a strategic investor comes in I do not think that there should be any problem for SpiceJet also to ramp up their market share maybe to 23-24 percent, so I am quite upbeat."

"If you go by the valuation criteria which in my view is the sole criteria for deciding any potential strategic investors to come in and choose one of the airlines, SpiceJet scores over all other two that is Kingfisher Airlines and Jet. Jet has seen to have an enterprise value of Rs 25,000 crore. Kingfisher Airlines if you take some restructuring move and all that, that will be seen to have an enterprise value of close to about Rs 15,000-16,000 crore and the problem is that it is a grounded airline, it has not yet taken off, again that is not a big worrisome."

"For SpiceJet the valuation comes to at about Rs 4,500 crore as of now. If you see very low debt of Rs 1,200 crore, the market cap of close to about Rs 2,500 crore and some suppliers’ liability of Rs 1,000-1,200 crore. So this seems to be a good suit for any potential acquirer. I am not too perturbed by the statement of Qatar Airways, but since management has indicated and even the promoter stake is quite respectable 48-49 percent, so they will definitely be looking for good valuations which they have been hinting at maybe at about Rs 70-75. So if that happens which is likely maybe in next two to three months, the share price can move to about Rs 60 or so in next six months."

Disclosure: I have investments in Shalimar Paints.