Jet Airways

Hi,

In todays Economics times there was a news saying Jet Airway is coming up with IPO in mid of february with price band of 950 - 1125. Is it worthful investment considering 3 - 6 months period of time ??

Thanks in advance
Parag

hiii parag,
the market of open skies is soon going to compete in a large way and the stock of jet also looks as over priced for small investors . the band is quite high for retail investors to get in.but, the bull run may see it landing up in huge over subscription and the stock may open at 20-30% premium. so any extra investment available, jus do the kill and come out.

Hi Traderji,
Even I would like you to comment on Jet IPO.. Do you think its overpriced at Rs 1000 odd.... What effect will the competition from new low cost airlines like deccan and kingfisher have on its future profits and market share and consequently its price in the secondary market.
regards,
rahul

Hey eyeryone,

I agree the IPO seems WAY over-priced. The balance sheet definitely does not justify the pricing. Jet has a big lead in the sky-war and i think they are going to emerge as India's international carrier as well.

On the other i am sure this is going to be highly over-subscribed, and you could see a 40-60% return on opening.

Hi,

Anyone made up their minds on Jet IPO? Im going with the UTV IPO. Jet is tempting but seems a bit risky. WHat say?

The initial public offering (IPO) of Jet Airways received an enthusiastic response from both institutional bidders and retail investors with the IPO being oversubscribed 4.4 times!

Looks like a good listing and profits for the allotees.

Jet IPO to be over subscribed at Rs 1125 2/18/2005 5:19:00 PM

Excerpts from CNBC-TV18's exclusive interview with Sanjay Miranka of Birla Global Finance, one of the largest IPO financers and Sandeep Madan, a high networth investor who regularly invests in IPO and secondary markets.

Q: Do take us through the whole procedure because a lot of people are still in the dark on what could be the interest rates on loans that one takes for an IPO. What is the initial margin money that you need to pick up for the kind of commitments that you make for an IPO?

Miranka: Interest rates are between 15 to 17.5% per annum. It is basically charged according to the period of the loan which is usually 15 days. If the refund is well in time and in terms of margin, that depends purely on the expected oversubscription. So if the oversubscription expected is around 10 times, then the margin could be somewhere around 10-15%, so that refund takes care of the loan amount.

Q: Typically on an issue like Jet because, people will now come to you for a loan. What would be your level of anticipation for oversubscription and what is the margin you can ask for financing a Jet deal?

Miranka: We are expecting an over-subscription anywhere between 12 to 18 times in our HNI category and we are looking at a margin of Rs 125 per share, which is around 11% of the total application amount. For every 10 of over subscription per shareholder, it would go to around Rs 7. So over subscription is say 10 times, then cost becomes Rs 70 and if our subscription is 15 times, then cost per share alloted would be Rs 105 for 15 days of financing.

Q: Two prices that have been seeing the largest amount of strive are Rs 1035 and Rs 1125. Where do you think the bid is likely going to come in now because from the trend it seems to be on the higher end.

Miranka: Basically, thats the way the book-building issues have shown and in the past, most of them have gone ahead almost on the upper end. Even TCS could hit the upper end, but TCS was nice enough to share the shares with the people at a lower price. So I look at it being oversubscribed at Rs 1125.

Q: If you were to bid for the Jet IPO, just take us through the kind of mechanics of the pricing or the financing as a high networth investor. What would be your expectation of over subscription and how would you go about rating your break even and bidding for the issue?

Madan: Basically, I differ with Miranka when he says that he gets back the refund in 15 days. The earliest I have had refunds is 3 weeks and the most delayed has been closer to 5 weeks, that is around 40 days. The calculation that I wish to share is based on a one month interest rate. Based on this I have taken both ends. Lowest end is Rs 950 and the higher end is Rs 1125. At Rs 950, if the subscription is ten times oversubscribed, then the break even point would be Rs 1092 and at the same cut off for Rs 950 if it is oversubscribed 15 times the break even would be Rs 1164. Anything below this would be a loss to me and I only get to make money, if it gets listed above this price and I get rid of it on listing. On the other hand, if Rs 1125 is the price at which this issue comes out and in that case the 10 times oversubscribed issue, my breakeven is Rs 1294 and in case of the 15 times oversubscribed issue, my breakeven is Rs 1378.

Q: If lower end is at Rs 950, the issue gets done and if it is oversubscribed 10 times then your break even is Rs 1092, then you get Rs 150 nearly immediately on listing for breakeven, otherwise you are going on a loss with the financing cost thrown in. The more the over subscription, the less you get, the more it hurts you and the more the stock needs to go up to break even. 15 times at Rs 950, you need to go at Rs 1164 on the screen, which is an appreciation of more than Rs 200 on listing, otherwise you are not in the money and at Rs 1125 similar calculations will tell you that if it ten times oversubscribed, your breakeven is Rs 1294, so the stock needs to go up about Rs 170 and if it is 15 times, you need to get Rs 1375 on the screen, that is a gain of almost Rs 250 on listing after Rs 1125.


So if the issue gets at Rs 1125, which is not an unreasonable expectation and if its oversubscribed 15 times then anything less than Rs 1375 does not make you money. This is Mr Madan’s calcuation to explain the phenomenon well. Would you also agree with that because there would be a slight difference. If you assume 30 days for payback it would be slightly different from your calculation.

Miranka: I think 30 days is really on the higher side but what we have experienced in whatever issues we have financed is that the refund usually comes anywhere in between 15-18 days. Even if you assume 18 days of financing time, then too Rs 7- your total cost works out to Rs 126 by shares alloted. So, if listing is more than Rs 150 and if Rs 140 is the cut off price, then we are earning money.

Q: How would you advise the retail advisor to play in this type of bracket to 15 times the subscription level. You are actually looking at a premium of Rs 150. Where should the retail investor look at hitting the Jet IPO at the higher end of the band.

Madan: Retail investors can bid at cut off. They can bid at 3 options --Rs 950, Rs 1075 and another bid at Rs 1125. That may increase the number of shares alloted and the cut off price is somewhere in between our subscription. We are talking about is HNI category. Retail category is totally different and there it could be that our expectation and market expectation could be around 5 times.

Q: Do you want to respond to that because as per Mr Miranka's calculation, he says if you get Rs 150 plus issue price, you are pretty much home. In most cases of Rs 1125, he would reckon at Rs 1270, he is breaking even and you are saying Rs 1375, that’s a big difference?

Madan: I have been in touch with these different organisations who do lend money for IPOs and few times this bait has been thrown at us telling us that calculation should be done within 3 weeks. I have always tried to tell them whether they can seal this in 3 weeks. Even if they get money in 18 days, let them keep upper 3 days amount with them. Can they fix in the interest at 3 weeks before the issue comes in and if the fund gets delayed, it is for them to get late. None of them till today have come forward and accepted my offer. So if Miranka is saying something, I wouldn’t like to refuse. But we can offer something on these lines, I can take him up for it.


Q: Do you want to rise to the challenge, Mr Miranka? He says, if I get 17 days then 4 days are yours but anything above 21 you take the risk. Can you do it?

Madan: Basically we want to do with fair financing scheme where even if the refund comes within 15 days we don’t charge for anything extra. So it is a win-win deal for financers as well as the investors. Like it has happened in most of the IPOs that refund has come between 15-18 days. Right from Maruti, it started in July since then we have financed more than 15 IPO’s. In all the IPO’s the refund has come in 15-20 days. So we are not challenging that refund getting delayed. Though it is a different matter that we are not financing the issues. This is what is practically happening. I think we need to be quite realistic when we are speaking of the number of days we can get the refund in.

In my opinion, it's a high risk-high reward IPO. The issue is over-priced and the interest will be mainly from institutions and HNIs. For getting assured allotment, more retail bids are likely to come at the higher end of the band, Rs. 1125. The retail over subscription may remain at 4-5 times. I am also not sure about the market conditions post-budget when it lists. Any guesses on the listing price ?