KFA death spiral continues: Q1 loss exceeds market cap

Kingfisher Airlines, laden with dues worth Rs 14,000 crore, continued its death spiral as its reported loss in the April-June quarter surpassed its market capitalisation on Friday.

At Rs 650 crore, the loss is nearly nine percent higher than its market capitalisation of Rs 598 crore on Friday, when the stock closed 11 percent lower at a new lifetime low of Rs 7.40.

The shares were hammered as investors feared the company will fall deeper into the red, after its troubles aggravated in April-June.

The wider losses were expected as the airline has not had anything positive to offer for more than a year.

[caption id=“attachment_414726” align=“alignleft” width=“380”]  On the brink of a collapse, lenders to the airline have been trying to cut their losses. AFP[/caption]

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On the brink of a collapse, lenders to the airline have been trying to cut their losses. They have threatened to take over the personal assets of Mallya, which have been held as collateral with them.

State Bank of India, which witnessed a huge spike in its net non-performing assets in April-June and is the lead bank of the consortium of lenders to the airline, had been after Mallya to get hold of his beach villa in Goa.

Whatever the deal is, the banks will end up taking a hair cut, a Reuters report said quoting Sharad Bhatia, CEO of Phoenix Asset Reconstruction Co, a distressed debt investor backed by Kotak Mahindra Bank.

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Vijay Mallya, meanwhile, has been trying his level best to rescue his other assets and companies from the lenders.

An earlier article in Firstpost had said thatall the evidence points to the airline becoming unrescuable, and Mallya is in danger of not only losing the airline, but his core liquor business as well.

It is crystal clear that Kingfisher is afloat only because of Mallya’s political clout rather than any economic logic, it said.

A report in Business Standard said pressure on parent United Breweries Holdings is heightening with lenders and lessors invoking corporate guarantees worth Rs 835 crore.

UB Holdings’ exposure to the airline, as on 30 June, “include investment in equity of Rs 2,114.28 crore, corporate guarantees to banks/aircraft lessors of Rs 8,919.86 crore, loans and advances of Rs 1,814.14 crore and other receivables of Rs 165.62 crore,” the report said.

Stock outlook

Kingfisher Airlines shares, already trading below par, have been on a decline for the last nine sessions in the run-up to the results.

Its employees, frustrated over the inordinate delay in salaries, resorted to another round of strike, which grounded around 30 flights.

The company’s shares have factored in all the negative news as of now and are trading below par, said Alex Mathews, head of research, Geojit BNP Paribas Financial Services.

“Though the company reporting losses more than its market capitalisation is a huge negative, the fall in Kingfisher Airlines shares has been so steep that a sharper fall from this level is unlikely,” he said.

“Some contrarians may even enter the stock at these levels, expecting the government to allow foreign direct investment in airlines,” he said.