Jet Airways grounded proposed plan to raise $400 million through a secondary rights issue

By Vipin Agnihotri

I still remember how investing during the Jet Airways market debut burned me real badly financially. The scrip, which listed at Rs 1,350, within a matter of two months of listing dipped to Rs 550. According to highly placed sources, Jet has put off the proposed plan to raise $400 million through a secondary rights issue. I think it’s a pretty wise decision from Jet because the global markets are quite weak at this moment of time and I don’t think Jet will get the valuations that they are looking for.

Company officials claims that Jet is doing well but the fact of the matter is that Jet Airways has only been making money over the previous quarters through sale-leaseback of aircraft. It is worth mentioning in this regard that last quarter (finished in June 2007), Jet Airways declared a net profit of Rs 30.8 crore on revenues of Rs 1,806.7 crore.

If experts are to be believed, Jet requires money because planes cost money. Point to be noted here is that a Boeing 777 costs $250 million, which is why Jet Airways need to raise funds for their expansion plans. It has come into the notice of The India Street that Jet wants to dramatically increase the number of planes in its fleet, particularly the long-haul ones such as the Boeing 777-300ers and the Airbus A330-200s from eight at the moment to as many as 40 by 2011.

In my opinion, Jet Airways is betting big on international services to fatten Jets profits. By the end of next year, Jet Airways will have services from eight Indian cities to Brussels and to eight points in America. Not so long ago, Jet received permission to fly to Kuwait, Muscat and Doha, becoming the first private Indian carrier to be allowed to fly on the lucrative Gulf routes from January 2008.

With Kingfisher also all set to enter the international market, there are some rumors going around in the Indian print media that Jet is playing a prominent part in scuppering Vijay Mallyas plans. Jet Airways is planning to work cohesively with national carrier Air India on the ground handling services part.

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Hot or Not? Aviation companies flying low!

By Sundaramurthy Vadivelu

Disclosure

In India, air travel is slowly becoming popular among people. About 1000 Indians who are accustomed to air travel perform nearly 20 trips in a year as against 60 in China and 2300 in United States. This reveals that aviation has not made much penetration amongst Indians.

Before 1990s the domestic sector was controlled by Air India and Indian Airlines (both state owned). After opening the Indian airpsace to private operators, several aviation companies have entered the market. Some of the airlines operating in the ‘90s are non existent today, like East West Airlines, Modiluft, NEPC etc. There are many private airlines in India of which only 3 are listed at NSE viz. Jet Airways, Deccan Aviation (Air Deccan) and Global Vectra Helicorp. First two offer passenger services using traditional aircraft while Global Vectra offers helicopter services.

The following table shows the percentage gains for these three stocks in the last one year.

Scrip	1 month	3 month	1 year
AIRDECCAN	1.07	20.79	72.81
GLOBALVECT	0.81	(8.04)	6.75
JETAIRWAYS	12.96	38.23	54.53

The following chart shows the prices of the scrips on various dates.

http://groups.google.com/group/theindiastreet/web/AVIATION_ONE_YEAR_040907.jpg

The following table shows the IPO price, highest close till date and fall from highest close.

Scrip	IPO price	Highest Close	% Fall from HC
AIRDECCAN	148	159.15	(10.74)
GLOBALVECT	185	318.5	(37.16)
JETAIRWAYS	1100	1375	(39.65)

It can be seen that though Air Deccan has lost 10.74% from its highest close, it has gained 72.81% in the last 1 year. Importantly, it declared a LOSS of Rs.213 crores for the financial year ending March 2007. The primary reason for the stock’s gain was Mr Vijay Mallya, who runs another airline company Kingfisher Airlines took 26% stake.

Global Vectra Helicorp has gained only 6.75% for the last 1 year. Interestingly, this company has declared a net PROFIT of Rs.12.5 crores for the financial year 2006 - 2007. But it has lost 37% from its highest close.

Jet Airways declared a net profit of Rs.28 crores for 2006 – 07 compared to Rs.452 crores for the previous year 2005 – 06. Despite a huge slump in net profits, the stock has managed to gain 55% in the last 1 year. It acquired Air Sahara, another private airline.

These statistics clearly indicate that the market expectations were completely different.

Let us now discuss the medium term charts of all the three stocks.

http://groups.google.com/group/theindiastreet/web/AIRDECCAN_W_040907.jpg

The stock closed below its 61.8% retracement at 101.65 for four weeks in a row. After it bounced back, though it could break its previous high at 162.90 it did not close above it. For the last 3 months, the stock is fluctuating in the 130 – 150 range. It is still bullish, as higher highs and higher lows have been formed. But it may take a while for the stock to break its previous resistance. The subdued volumes in the daily chart suggests that a breakout is unlikely at the moment. So taking fresh positions is not ideal now.

http://groups.google.com/group/theindiastreet/web/GLOBALVECT_W_040907.jpg

This stock had almost fallen back to its support level at 154.15. A bearish “Three outside down” pattern had been formed in early July. Note that the support trendline has been broken and stock has closed below it for 6 weeks in a row. Though the stock may recover slightly due to technical rallies, fresh buying in the stock cannot be contemplated now.

http://groups.google.com/group/theindiastreet/web/JETAIRWAYS_W_040907.jpg

The technical scenario for Jet Airways is a tricky one. It also had broken its support trendline and closed below it during March 2007. It has bounced back from a low of 533 to a high of 970 but when it broke previous resistance at 805 it ended the week with a red candle and volumes were not great either. The high 970 made during the next week was not sustainable and stock is just testing its support levels. Unless it closes above 970 with good volumes in medium term charts, one may not take a long position in the stock.

Conclusion:

The medium term charts of the three stocks do not favour investment now. One may consider new exposures after reassessing the technicals later.

Sundaramurthy Vadivelu

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How do IPO’s fare in Secondary Market?

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on theprinciples of technical analysis, a science that has been tested and proven formore than hundred years. The views are unbiased and informative in nature.These do not constitute an offer to buy or sell stocks. Every effort has beenmade by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannotafford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or hisclose associates may or may not be having positions at the time of writing thisarticle.

The reader needs to understand that this article is purely for informativepurposes only and all transactions, if entered into by him will be solely at his risk.

The author does not guarantee that the projected targets will be achieved withinthe stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com).

- - - - - - X - - - - - - X - - - - - -

IPO or Initial Public Offer facilitates a company to sell its equity shares toinvestors, usually for the first time. There are two ways a company can allotequity shares to investors:

1. Fixed Price Option in which company fixes the issue price.

2. Book building method, in which company fixes the floor price and theprice range for bidding by investors. The investors need to bid for equityshares between the range fixed by the company.

The difference between the two, apart from price is that the demand for thesecurity can be known every day in case of book building whereas in fixed priceoption it can be estimated only after the issue closes. The allotment price will beinitimated to the investor after allocation of shares.

A company can issue IPO’s either by fixed price option or book building methodor a combination of both. Now a days book building is more common.

When an investor applies for an IPO, he reads the offer document and if satisfiedwith its contents, risk disclosure etc. he proceeds further with the applicationprocess.

However, after the stock gets listed in the exchange and trading begins, we findthat funny things start happening. Obviously no price volume data will beavailable before the stock gets listed, and as trading goes on, the technicalanalyst will be able to understand the price action.

Before one invests in IPO, he has to realize this fact and it is one of the marketrisks. Companies with good fundamentals and decent corporate results havestruggled in the stock market.

Let us study each case with an illustration.

Educomp Solutions Limited:

Issue price was Rs.125. The stock has skyrocketed to Rs.1880 as on28.05.2007. So, the investor has gained about 15 times in 16 months time. Nice thing, if one had the vision to anticipate such price.

Let us examine the weekly chart of EDUCOMP shown below.

Every rise was followed by a corrective decline or sideways movement as it canbe seen in the chart. This is an indication of a healthy bull market.

This is an example of an ideal case where the bulls were in perfect control overthe stock.

Jet Airways (India) Limited:

It was allotted at Rs.1100 per share 2 years ago. It has been struggling eversince it got listed. Nice airline with good financial results but in the stock marketit is truly an underperformer. I have read reviews of Jet airways and they fly toSouth East Asia, Europe and USA (from August 2007) as well. Their serviceseems to be very good, I understand from the reviews. The net profit for thefinancial year 2005 – 2006 is about Rs.452 crores or Rs.4.52 billion. But let ussee the weekly chart of jet airways for a while.

It continued to form lower highs and lower lows till about late July 2006. It fellfrom 1383 to 475. It was bullish till mid February this year and managed to closearound 786. As can be seen from chart, it broke its support trendline andreached another low. Stock seems to be bearish and it is quite possible thatfurther lows may be reached. Unless it closes above 805 which will be horizontalresistance line one should not expect much from this stock.

Bombay Rayon Fashions Limited:

Issue price was Rs.70. Textile stocks have been witnessing a steep fall thesedays but this one is attempting to test its previous high.

It was almost non stop rise from 80 to 258.60 followed by a downtrend to a lowof 102.50. It managed to break its previous high and touched a high of 275.50during the next uptrend. But since its support trendline has been broken, it mayface strong resistance at its previous high.

This is a remarkable stock considering the bearish trend among popular textilestocks like Arvind Mill, Alok Textiles, Bombay Dyeing, Raymond etc.

JHS Svendgaard Laboratories Limited

The stock was allotted for Rs.58. But it was continuously bearish and reached alow of 27.50. Currently it is bullish and a close above 43.20 is likely to take thisstock further up.

There is nothing wrong with this stock technically. Uniform price volume patterncan be seen in case of both uptrend as well as downtrend. It has closed aboveits resistance trendline. One will have to wait and see whether it closes above itshorizontal resistance line at 43.20.

Reliance Petroleum Limited

Issue price was Rs.60. The stock touched a high of 105 in the listed week butthere was not much of activity for the next 10 or 11 months. It turned bullish inlate March this year and very likely to test its previous high soon. Its previouslow of 58.05 has not yet been broken, though it did come close to it at 58.10.The chart looks like a bowl – very unique.

Shree Renuka Sugars Limited

It was issued for Rs.285. After that it skyrocketed to 1665 and fallen again allthe way to 260.10. This again is unique – all this happened in about 18 monthsor so. Though currently bullish, because of the absence of clear waves, it islikely to face resistance around 917. One of the few sugar stocks the crowd isinterested when many others are on a downtrend.

Conclusion:

Investing in IPO’s has its own potential risks and rewards. Some are runawaysuccesses whereas some others have miserably failed. So, before you put yourmoney in IPO please be aware of this fact. Each stock does behave differentlybut understanding what IPO and how it fares in secondary market will make theinvestor little more knowledgeable.