Allowing FDI: Sentimental booster…
By allowing FDI from foreign carriers, the government has opened up
new avenues for fund raising by domestic carriers who are currently
finding it tough to raise money from Indian banks.
As per the rules of this new policy, 1) There will be no automatic
clearance for such FDI proposals and it has to be vetted by FIB and
security agencies. 2) The JV airline will have to be registered in India and
also have its principal place of business in India. 3) The JV must be Indian
owned and lastly 4) The chairman and two-third of directors will have to
be Indian citizens.
In our view, this bold step by the government, though it would help the
Indian carrier over the longer term in a strategic manner, would do little to
attract foreign investments over the short to medium term, unless the
sector fundamentals are set right first through further policy changes with
respect to taxes on ATF, free pricing, etc.
Looking at the fundamentals and balance sheet positions, SpiceJet and
Jet Airways are both placed better to attract investments via the FDI route
over the longer term. Hence, we continue to remain positive on both
these stocks and maintain our BUY rating.
http://content.icicidirect.com/mailimages/ICICIdirect_AviationSector_QuickComment.pdf
http://content.icicidirect.com/mailimages/ICICIdirect_AviationSector_QuickComment.pdf
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