Jet Shareholder ? Prepare for crash landing
Jet airways, one of the largest airlines in the country had to stop its operations few days back as they were unable to make payments to lenders, employees and other partners. Despite of it being a preferred carrier, it has never really rewarded the shareholders. The stock movement has always been choppy from 1290 Rs in 2005 to 165 Rs in the present day. Now, with huge debt, halted operations and employees leaving, the stock has been sinking. But, as always retail investors are seeing this price crash as an opportunity. There is a wrong notion among people that someone would buy the airlines anyways and the stock price would again appreciate. And, here is why it wouldn’t happen.
Negative Net worth
Anyone buying an asset would pay a price of what it is worth. Now, let us see what is Jet worth at present. The company has outstanding debt of almost 8400 crores INR which they secured from multiple banks including SBI, Yes Bank, etc. All these banks are not receiving any interest payments from few months. And they have formed a consortium to sell Jet Airways to get their money back. Now coming to the assets of the company. They don’t own any aircrafts. Instead, they lease them from Boeing and Airbus like all other airlines. As per March 2018, they had 1365 crores Rs cash on their books which would have been reduced further because the airline has been posting losses every quarter in 2018-19. Book Value is a term which specifies the net worth of the company subtracting the net assets and net liabilities of the company. And the book value per share of Jet Airways comes out to be -628 Rs. But, the market value of the Jet airways share is 165 Rs. The current market price does not reflect the true value of Jet and can fall a lot more.
Apart from assets, a buyer might pay for profits which a company would generate from operations. Talking about Jet, it had not generated profits from past few quarters and has now shut down its operations. Hence, there is no way they are going to make any profits. Again, why would a buyer pay for a company that has no value on books and no profitable operations. Employees have not received their salaries from many months. Also, a lot of employees have already left Jet Airways to join other companies. Hence, any buyer would also need to pay pending salaries.
Next what ?
Banks have been trying to find potential suitors who can buy stake in Jet Airways. Till now, they have approached TPG Group, Tata Group, Adanis and Etihad. But, no one has come forward with a proposal to salvage Jet and pay the debt. And with every passing day, Jet’s value is going further down. In case of no acquisition, Jet would have to be liquidated. And, as per the rules, first right on company’s assets would be of the lenders. And in case something still remains, that would finally go to common shareholders. In case of liquidation, the banks would themselves have to take a haircut on their loans worth 8400 crores INR. This would anyways not leave anything for the shareholders. Therefore, even the current market price is not justified for Jet Airways and it can crash like previous high debt stories. Hence, we would suggest that don’t buy Jet Airways stock unless and until you are betting for a miracle.
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Disclaimer: I am not a SEBI registered analyst and not advising anyone to buy. The purpose of this article is to share my viewpoint about fundamentals and the future prospects of the company. So, please do not consider this as an investment tip. Talk to your financial advisor before taking any investing call.
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Hi, I am Azhar, a management graduate from IIM Bangalore. I work as a manager in a FMCG firm. From college days, I had a lot of interest in equity markets. My passion for teaching led me to setup this site to educate retail investors about stock markets investments. Looking forward to learn and grow with you. Happy investing !!