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Kingfisher Airlines Limited
Underweight
KING.BO, KAIR IN
Incorporating Debt Conversion to Equity, Maintain UW
• Conversion of debt at higher than expected price: Kingfisher’s debt
from financial institutions was recently converted to common equity at
Rs64.48/share. The conversion price is higher than our assumption of
Rs40/share, which has resulted in lower equity dilution v/s our
estimates. Post conversion, Kingfisher debt has reduced by Rs14.95B
(Gross debt at Rs79.2B at end of FY10) with lending banks now owning
23.4% stake in KAIR. We raise our TP to Rs43 (from Rs39) to account
for higher conversion price. Maintain UW.
• Delay in GDR issue does not bode well: We believe that KAIR
requires fresh capital infusion to streamline its operations. With
management indicating that the current economic environment is not
suitable for a GDR issue, fresh capital infusion has been delayed. As a
result, we believe that potential benefits form reduction on creditor days
and resultant bulk fuel discounts and reduction in airport charges may
not accrue in the near term.
• Demand-Supply dynamics remain strong, but oil prices remain a
worry: Load factors continue to remain in early 80s even as most of the
grounded aircraft have been redeployed. However, we see margin
pressure from current prices building up (current crude at US$125.5/bbl
vs. our assumption of US$104/bbl). Going forward, crude prices remain
the biggest risk as we believe that KAIR may not be able to pass through
fuel price hikes in full measure given the rising competitive intensity in
the domestic aviation sector.
• Estimates, valuation, key risks: We revise our EPS estimates building
in lower equity dilution. Consequently, we increase our Sep-11 TP to
Rs43 (from Rs39) based on 8x Sep-12E EV/EBITDAR. Key upside risks
include lower than estimated crude/jet kerosene prices and issuance of
proposed US$250MM GDR. Further downside risks include higher than
estimated crude/jet kerosene prices, delays in redeployment of remaining
grounded aircraft and weaker INR.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kingfisher Airlines Limited
Underweight
KING.BO, KAIR IN
Incorporating Debt Conversion to Equity, Maintain UW
• Conversion of debt at higher than expected price: Kingfisher’s debt
from financial institutions was recently converted to common equity at
Rs64.48/share. The conversion price is higher than our assumption of
Rs40/share, which has resulted in lower equity dilution v/s our
estimates. Post conversion, Kingfisher debt has reduced by Rs14.95B
(Gross debt at Rs79.2B at end of FY10) with lending banks now owning
23.4% stake in KAIR. We raise our TP to Rs43 (from Rs39) to account
for higher conversion price. Maintain UW.
• Delay in GDR issue does not bode well: We believe that KAIR
requires fresh capital infusion to streamline its operations. With
management indicating that the current economic environment is not
suitable for a GDR issue, fresh capital infusion has been delayed. As a
result, we believe that potential benefits form reduction on creditor days
and resultant bulk fuel discounts and reduction in airport charges may
not accrue in the near term.
• Demand-Supply dynamics remain strong, but oil prices remain a
worry: Load factors continue to remain in early 80s even as most of the
grounded aircraft have been redeployed. However, we see margin
pressure from current prices building up (current crude at US$125.5/bbl
vs. our assumption of US$104/bbl). Going forward, crude prices remain
the biggest risk as we believe that KAIR may not be able to pass through
fuel price hikes in full measure given the rising competitive intensity in
the domestic aviation sector.
• Estimates, valuation, key risks: We revise our EPS estimates building
in lower equity dilution. Consequently, we increase our Sep-11 TP to
Rs43 (from Rs39) based on 8x Sep-12E EV/EBITDAR. Key upside risks
include lower than estimated crude/jet kerosene prices and issuance of
proposed US$250MM GDR. Further downside risks include higher than
estimated crude/jet kerosene prices, delays in redeployment of remaining
grounded aircraft and weaker INR.
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