Anurag Jain's Blog on Bangalore Events, Travel, IIM Bangalore, IIM, IIMB, Management

Wednesday, February 01, 2006

Posted 7:44 AM by Anurag

Air Deccan goes public!

Yessir, we are goin public! Last week, Air Deccan filed the Draft Red Herring Proespctus with SEBI, paving the way to hit stock exchange within next 1-2 months. A primer on shareholding pattern of the company: Currently, the promoters hold 64% equity whereas the rest is owned by the private equity firms Capital International One and ICICI Ventures(We've had two rounds of PE funding so far). The extent of equity dilution is 25% (post-issue) reslting in offloading of 24.5 milion equity shares in total. Hence, after the issue, promoters share would stand at 48%, whereas the PE investors will be at 27% and rest 25% of course will be with public.

The whole public issue will be offered through a book building process. But, if I am to go by initial numbers, we are planning to raise 250-300 million USD. At 25% equity, that values our firm at a billion dollar or more. Now, doing the simple divisional math will easily tell one that at a middle-path valuation of 25% equity at 275 milion USD, the share price is expected at 505.4 Rs. Just for comparison, last year, Jet Airways stock opened at 1100 Rs. With that, the company was valued at around 2.2 billion USD in the market. To be sure, Air Deccan is smaller than Jet, commands around 13-14% market share as opposed to Jet's 39% (withou Sahara). And Air Deccan's networth maybe 50% of Jet (Just a guesstimate), but it definitely deserves at least half the stock price valuation of Jet. Lets see whats the actual price the Air Deccan stock comes to through book-buildings process and also I am expecting major price gains at the opening.

That reminds me of the fact that Air Deccan is the only airline in India to have an ESOP (Employee Stock Option Plan) scheme. Air Deccan has offered 10% of its stock as ESOPs to its employees. And even after five years of full vesting by all the employees, ESOP would result in only 5% of equity dilution. I sure am glad as I have some ESOPs on my person :) And the first vesting period is as soon as June 2006! I sure am betting on the company, and batting for it! Care to join? :)

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1 comments

Comments:

Dear Mr Veera:

Nice to see your comment. You are right to some extent about capital intensive businesses. But you'd be wrong to generalize this fact.

I handle revenues @ air deccan and thats why I know how much pressure it has to make money and not just burn cash by the way of comnverting black money to white.

And about high equity stake of promoters, you yourself answered it, Sir: Big business are BIG and thats why the promoters' stake is low because the absolute amount still works out to be huge! They wouldn't have been able to raise those kinds of monies without substantially diluting their equity! On the other hand, Premji holds more than 85% in Wipro. Is that a small business? NO!

Thanks for your interesting views and once again, look forward to hearing more from you.

# posted by

Anurag : May 17, 2006 4:32 PM