Investors should stick to Jet Airways shares as co to get boost from international business

Long-term investors should hang on to the stock of Jet AirwaysBSE 12.90 % as the company's more profitable international business will receive a major boost due to the synergies involved in Etihad Airways checking in as a strategic investor.

 India's largest private sector airline has said it will raise Rs 2,050 crore by selling 24% stake to Abu Dhabi-based Etihad Airways by issuing preferential shares. At Rs 754 per share, the deal is at a premium of 31% to Jet's closing price of Rs 574 on Tuesday on BSE. The premium on aviation deals across the globe in the recent past has varied widely, ranging from 12% and 80%.

 Sharan Lillaney, aviation analyst with Angel Broking, thinks the deal is fairly valued. "The deal commands a market capitalisation-to-sales ratio of 0.3, which is quite attractive. Etihad is getting stake in India's largest airline company and it works well in the long-term."

 Jet Airways will plainly benefit from the global presence of Etihad Airways. In the last five years, Etihad has expanded by buying small stakes in various international airlines including Virgin Australia, Ireland-based Aer Lingus, Air Seychelles and German carrier Air Berlin. Such acquisitions have given it a wide presence through joint marketing of routes and code-sharing agreements.

 There are two ways for Jet to utilise the funds. It can marginally lighten the balance sheet by reducing its mammoth debt of around Rs 13,000 crore. It may also use some of the money to expand operations overseas, especially in Abu Dhabi.

 "Jet will be able to not only reduce debt but also chalk out strong expansion plans in the Middle East," said Rasheesh Shah, aviation analyst, ICICI Securities. Currently, of its 21 international destinations, 10 belong to the Gulf region.

 The bilateral treaty currently in place between India and the UAE allows exchange of 13,000 airline seats per week which has which has been increased to close to 50,000 seats. This will enable Jet Airways to use Abu Dhabi as a hub and connect Indian travellers to Europe and North America where Etihad has a strong presence. Using Abu Dhabi as a hub will also reduce Jet's fuel costs since it would get ATF at a cheaper price in the oil-surplus country. At present, fuel costs account for 42% of its net sales

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