Stock Review: Kingfisher

 

The change of fortunes for the airlines industry in the past one-and-ahalf years seems to have evaded Bangalore-based Kingfisher Airlines. The company continues to be beset with problems that have squeezed its earnings and left it lossmaking. The December 2010 quarter proved to be its sixteenth consecutive quarter of losses, as the company reported a net loss of . 252 crore, a bit lower than the year ago number. In spite of its recent debt recast, sustainable growth will depend on the success of its equity infusion plan. The company's most critical problem is its debt, which is mammoth and still rising. During the past oneand-a-half year, for example, the interest payment took away an average 21% of its revenues, which was sub-stantially higher compared with less than 10% for its peers like Jet Air-ways or SpiceJet. Kingfisher Airlines has been making cash losses year after year, which has resulted in rising loans to fund losses.

The problem of perennial losses has been, no doubt, its origin in the company's operational problems. For the past six quarters, 14 out of 66 its aircraft remained out of action — nine on account of technical problems and five due to company's inability to pay lease rentals. This meant a huge loss of opportunity as the industry's growth momentum picked up.

This also resulted in the company losing its market share to smaller players, like Indigo. Kingfisher's market share dipped to 18.9% in December 2010 from a peak of 23% in March 2010 while its competitors such as Jet Airways, SpiceJet and Indigo gained. In fact, Indigo Airlines, which was the smallest of the lot, now commands market share on par with Kingfisher.

No wonder then that the company also proved to be a value destructor for its investors. In the past one-anda-half years, the company's stock has fallen by 11% while the stocks of Jet Airways India and SpiceJet have given returns of 110% and 154%, respectively.

However, the company is now trying hard for a revival. It has kicked off a debt-recast plan with its lenders in the December quarter, which is estimated to reduce its annual interest burden by . 450 crore. It converted loans of nearly . 1,950 crore into preference shares, rescheduled repayment of remaining loans and reduced interest rates, besides securing further funding worth . 1,200 crore from banks. At the same time, the company is planning to raise $250 million through issue of global depository receipts (GDRs) by March 2011. If successful, this will further reduce the company's debt and interest burden.

Recently, the company brought back seven of the 14 grounded aircraft, which will lift its March 2011 quarter numbers. However, for a sustainable recovery, a lot would depend on the success of its GDR issue.