New Delhi: The likely entry of Sun TV Network Ltd founder Kalanithi Maran as a strategic investor in SpiceJet Ltd could be a potential game changer for the low-cost airline and help sharpen its focus on expansion, analysts say.
Maran is in talks with WL Ross and Co. Llc to buy the latter’s stake in SpiceJet, an executive at the airline confirmed on Thursday on condition of anonymity. Maran, through his advisers, is in talks with the firm to buy WL Ross’ entire 30% stake, the Business Standard reported on Thursday.
“Officials have been visiting for due diligence,” said the airline executive. Separately, the Gurgaon-based, low-cost carrier has been looking to raise $50-75 million (Rs225-338 crore) through a preferential placement of shares, the same official said.
Strategic investor: Sun TV Network founder Kalanithi Maran.
If it happens, Maran’s purchase of the stake would bring to SpiceJet a strategic investor who could help guide the airline through rough times for an airline industry that’s hurting from intense competition and high costs. India’s three biggest airlines, Jet Airways (India) Ltd, Kingfisher Airlines Ltd and National Aviation Co. of India Ltd-run Air India, are laden with combined debt of Rs36,000 crore and are all looking to raise funds.
“A strong investor is half the job done,” said Centre for Asia Pacific Aviation’s India chief executive Kapil Kaul. “If he checks in, he is going to bring in a very strong financial investor that augurs very well for the industry and for SpiceJet. It will help bring long-term focus to SpiceJet and that’s what SpiceJet needs—a long-term direction from the board.”
Saj Ahmad, an analyst at FBE Aerospace, a London-based consulting firm, said the SpiceJet “story is interesting”.
“However, the key point here is that it represents better long-term value, strength and growth in contrast to IndiGo, Paramount, Jet, Kingfisher, et al,” he said.
Maran could not be reached for comment at his Chennai office.
“Till it becomes a reality, it gets into meaningful stage, it’s just a piece of information. It is not something which we can comment on right now,” said a Sun TV executive who didn’t want to be named.
WL Ross chief Wilbur Ross said that offers to invest in SpiceJet were under consideration. “Various parties have expressed interest in either a passive or active participation in SpiceJet and we are evaluating their proposals,” Ross said in an email.
Ross holds $68 million of bonds that can convert into about 125 million shares with a conversion price of Rs25. WL Ross agreed to buy the bonds in July 2008. Ross’ bonds, due by December, can be converted into shares worth around Rs730 crore based on Wednesday’s closing price and figures from SpiceJet.
SpiceJet shares fell on Thursday by 0.69% to Rs57.90 on the Bombay Stock Exchange while the benchmark Sensex rose 0.94%.
Rashesh Shah, an analyst at ICICI Securities Ltd, said in a 26 March report that the airline is expected to report a net profit of Rs101.3 crore in 2009-10 after witnessing losses in the past five years and increased the target price for the stock to Rs72.
The airline industry in India is headed for a process of consolidation, said Sadeesh Raghavan, former managing director of Accenture Ltd’s India domestic businesses.
“The industry will have to go through a phase of consolidating and clearing of debt that has to happen,” he said. “There is need for one strong low-cost carrier like AirAsia. Who is that going to be is unclear. Spice has a chance to do it, IndiGo has a chance do it, who would be the eventual winner—the jury is out (on it).”