Mumbai / New Delhi: Shares of Deccan Aviation Ltd, which runs low-fare airline Deccan (formerly Air Deccan), jumped more than 23% to a 52-week high on Indian stock exchanges amid speculation of a full merger with Kingfisher Airlines Ltd and potential profitability in the second quarter of 2008.
Deccan shares went up as much as 29% to Rs200.80 during intra-day trades, but closed slightly lower, at Rs192, up 23% over the previous day’s close, on the National Stock Exchange (NSE). Some 6.7 million shares changed hands, up from an average of less than a million shares a day during November.
The shares also rose 23.23% to end at Rs191.50 on the Bombay Stock Exchange (BSE). During intra-day trade, the shares had risen to their 52-week high at Rs201.
There was no bulk deal on Deccan shares reported on BSE on Tuesday, while data from NSE for Tuesday wasn’t immediately available.
Ramki Sundaram, chief executive officer of Deccan, said he didn’t know why the stock price had shot up.
“It’s unclear what’s happening,” he said. “And with the way the stock price has moved today, I would not like to make any forward looking statements.”
“I don’t know what it is. I think its crazy,” added Ravi Nedungadi, CFO & president, UB Group, which owns Kingfisher. “We are not contemplating any kind of corporate or legal organization change at this time. We are certainly looking at integrating operational side of the two airlines—routes, engineering, revenue matters—and all that. That’s our focus, but we don’t believe it is necessary to change the corporate structure to achieve these benefits.”
Nedungadi said his company had no plans of increasing its stake in Deccan from 46% to 51% as he did not see that as the only way of “putting the UB’s money to best use”.
UB Group, which increased its initial 26% stake in Deccan to 46% recently, had earlier said it intends to increase its equity to 51%.
“It is not our intent. We do not any have such plans do it. We made an open offer of 20% to comply with the regulatory authority (Securities and Exchange Board of India, or Sebi), if we wanted 51%, we could have made an open offer of 25% then,” he added.
The UB Group has also hired consultant Accenture to figure out how to go about managing the two airlines together. Nedungadi denied that the firm was hired to merge the two airlines.
“The brief to Accenture is clear—it has to find rapid routes to turn both the airlines profitable,” he said. “And it’s not that they are submitting one long report, they are on a long-term assignment and will be submitting reports weekly until the airlines achieve profitability. It’s not a big-bang approach.”
The Accenture report is expected in January.
The only way the two airlines could be merged, he said, is if the existing set-up doesn’t yield profitability. He did not specify the time-frame for achieving that.
“Unless they (Accenture) are saying that operational synergies could not yield profitability and the only way is to merge, I don’t see why we need to merge,” he added.
According to NSE, there was a bulk deal in Deccan shares worth Rs20 crore on Monday. The seller of the scrip was Money Matters Advisory Services Ltd. Mumbai-based Money Matters provides “buy-out funding” to its corporate clients.
Money Matters and Money Matters (India) Pvt. Ltd had purchased Deccan’s shares worth Rs101 crore on 27 September in bulk deals, from institutions, including ICICI Bank Ltd, UBS Securities and the Western Indian Trust and Excutor Co. Ltd.
Those stocks that are traded in the derivatives segment are not subject to any circuit filters. Deccan Aviation is one of them.
“Though Kingfisher Airlines has recently re-launched Deccan Aviation as ‘Deccan’, there were market rumours about the latter merging with the former soon. Kingfisher Airlines chairman Vijay Mallya has also said that he will soon look at increasing his stake to 51% from current 46%,” noted a Mumbai-based aviation analyst, who did not want to be named as he is not authorised to speak to media.
The volatile stock price was a repeat of a similar leap that Deccan’s stock made in May of this year, when market speculation of a possible investment by the Reliance- ADA Group led to a 20% jump in Deccan’s scrip in one day.
It might be possible that speculators are acting in advance of an expected or rumoured corporate announcement, said another analyst who also asked not to be quoted.
“It is likely that there is likely some corporate development and only post-event, you will get to know (exactly what happened),” he said. And on that day all these buyers will take out their money.”
Deccan had written to the stock market regulator Securities and Exchange Board of India to investigate the May stock price jump for insider transactions. Sebi did not carry out an investigation, said Sundaram.
Mint couldn’t immediately ascertain as to why no investigation was done.
Mobis Philipose also contributed to this story.