A

Project Report On:

Fundamental Analysis of Aviation Sector

For
Reliance Capital

By-

Abhay Kapkoti
DMS, Bhimtal

Under the guidance of

Mr Neeraj Mishra

Acknowledgement
This project on Fundamental Analysis of Aviation Sector was beyond imagination for a rookie, such as me ,
in the vast field of Finance. A lot of people have contributed immensely towards its competition. I would start
by thanking My Parents who entrusted me with the responsibility to go to alien conditions to learn a ne w
craft.
Mr Neeraj Mishra (Our Mentor) who did all he could, both academically and personally, to get us into a
constructive environment, in which we could learn & grow. Thank you sir, without you this project would not
have been possible.
I would also like to thank Dr L.K. Singh who shared his valuable advice with us both as our professor &
mentor in this project.
Prof. P.C. Kavidayal was has always motivated us & to whom we seek in troubled times.
Lastly I would like to thank my friends who have been there always supporting & helping me throughout the course of this project & life in
general.

Sn. No

01
02
03
04
05

Topic

Page
No.

Executive Summary
Company Profile
Objectives of Project
Research Methodology

Contents

Chapter 01

Executive Summary
This project has been quite a learning curve in my pursuit for knowledge. It has made me more familiar with the practical
world of Finance, which as it turns out is much more complicated, and thus much more interesting.
The Fundamental analysis is an effective tool of valuation of any sector, as it uses all the information from multiple
environments to come to a precise decision.
In this I project I have tried to touch various factors that affect the Aviation industry. The aviation industry is particularly
susceptible to external economic factors because it affects and depends on a substantial number of industries.
It is no secret that the Indian Aviation Industry has been going through a turbulent phase over the past several years, be it the
policy paralysis of the government or the depreciation rupee high oil prices and limited pricing power contributed by industry
wide over capacity and periods of subdued demand growth. Over the near term the challenges facing the airline operators are
related to high debt burden and liquidity constraints - most operators need significant equity infusion to effect a meaningful
improvement in balance sheet. Improved financial profile would also allow these players to focus on steps to improve long
term viability and brand building through differentiated customer service.

Today the industry contributes around 0.5% to the Gross Domestic Product (GDP) and employs some 1.7 million people. Other
than this direct contribution to the economy, the aviation industry also contributes by facilitating domestic & international
tourism thereby improving the performance and contribution of tourism industry.
Over the long term the operators need to focus on improving cost structure, through rationalization at all levels including mix
of fleet and routes, aimed at cost efficiency. At the industry level, long term viability also requires return of pricing power
through better alignment of capacity to the underlying demand growth.
This projects tries to throw some light on the prospective future of our aviation industry, and to know whether Indian Aviation
has it in it to fly high & reach its zenith. Does the 49% FDI would be a game changer in the industry? How much of it can be
blamed on the government? Which companies are likely to make out these testing time?

Fundamental Analysis

Fundamental Analysis is a stock valuation technique which looks into the economic & financial position of the company to predict its growth in
a certain period. It takes into account the financial information & the non-financial information such as the growth in demand, industry
comparisons, government policies etc.
The outcome of a fundamental analysis is a value, or range of values known as the intrinsic value. To a fundamental investor the stock prices
tend to revert towards its intrinsic value.
Fundamental Analysis gives answers to the questions like

Is the companys revenue growing?

Is it actually making a profit?
Is it in a strong-enough position to beat out its competitors in the future?
Is it able to repay its debts?
Is management trying to "cook the books"?

Need For Fundamental AnalysisEffective Market Hypothesis EMF states that it is impossible for an investor to beat the market, because the stocks are always bought
& sold at a fair price in consistency with the information available in the market.
As such, it should be impossible to outperform the overall market through expert stock selection or market timing and that the only way an
investor can possibly obtain higher returns is by purchasing riskier investments
In other words EMF says that every information in the stock market, be it the earlier performance of the company, or the current economic
policies which would be responsible for further growth of the company are all in the public domain, so to reap out profit from the information
which is available to all is impossible. If the investor wishes to make fortune in stock market, he has to invest in more riskier investments, &
thats the only way into it.

Arguments against Hypothesis- Effective Market Hypothesis might be one of the corner stone towards finance, but it has been proven in
the last few decades that the markets are reasonably efficient but beating them is quite possible.The behavioural scientist attribute this towards the
combination of financial markets and cogitative biases such as overconfidence, overreaction, representative biases, information bias and other
biases.
The market often appears to be driven by buyers operating on irrational exuberance, who take little notice of underlying value.

Sudden market crashes are mysterious from the perspective of efficient markets and throw market efficiency to the winds. Other examples are of
investors, who have consistently beaten the market over long periods of time, which by definition should not be probable according to the EMH.

Fundamental Analysis, does it work?

Recent years have witnessed a new wave of researchers who have provided thought provoking, theoretical arguments and provided supporting
empirical evidence to show that security prices could deviate from their equilibrium values due to psychological factors, fads, and noise trading.
Thats where investors through fundamental analysis and a sound investment objective can achieve excess returns and beat the market.

Steps involved in Fundamental AnalysisFundamental analysis consists of a systematic series of steps to examine the investment environment of a company and then identify
opportunities. Some of these are:
Macroeconomic analysis - which involves analysing capital flows, interest rate cycles, currencies, commodities, indices etc.
Industry analysis - which involves the analysis of industry and the companies that are a part of the sector
Situational analysis of a company
Financial analysis of the company
Valuation

Techniques of Fundamental AnalysisFundamental Analysis can include everything related to the economic wellbeing of the company. Obvious items include things like revenue and
profit, but fundamentals also include everything from a companys market share to the quality of its management.

The two techniques used to evaluate a company used in this project are
Quantitative Techniques-These techniques deal with the more numerical or measurable characteristics of the business. These may include the
profit earned, total revenue, and other qualitative data from financial documents.
Qualitative Techniques- These techniques refer is to the character or quality of the company. The intangible things like brand name, market
share, qualification of board of executives.

Objectives of Study1. Primary Objective- To analyze the present trends in the aviation industry.
2. Secondary Objecives To predict the future of Aviation Industry for coming five years.
To select profitable companies, from a long term investors perspective.

PERIOD OF STUDY
The study was conducted for 45 days from 2-7-13 to 10-8-13.

LIMITATIONS OF STUDY
As the Japanese saying goes There is always a better a way. Looking back, even after all my efforts , this project do have
some shortcomings. These are my real takeaways from this project. Some of them are listed below(1) Respondents unavailability.
(2) Rookie to the ways of finance.
(3)Time unavailability, because there was so much to learn in this alien environment.
(3) Courtesy bias.

Scope of Study-

RESEARCH METHODOLOGY
Research comprises defining and redefining problems, formulating hypothesis or suggested solutions;

collecting,

organizing

and

evaluating data; making deduction and reaching conclusions; and at last carefully testing the conclusions to determine whether they
fit the formulating hypothesis Clifford Wood.

Research methodology
It is a way to systematically solve the research problem. It may be understood as science of studying how research is done scientifically.
In it we study the various steps that are generally adopted by the researcher in studying his research problem along with the logic behind
them. In general methodology is an optional framework within which the facts are placed so that the meaning may be seen more clearly. The
sources of data shown that designing of a research plan calls for decision on the data sources are research approaches (primary and secondary
data) research instruments (observation survey experiment) sampling plan and contact methods (personal interviews).
Research design
A research design is the determination and statement of the general research approach or strategy adopted for the particular project. It is the
heart of the planning. If the design adheres to the research objectives, it will ensure that the client need will be served.
Research design is a plan structured and strategies of investigation. It is the arrangement of condition and analysis of data in a manner to
combine relevance to the research purpose with economy in procedure.

 In order to achieve the objective it was necessary to talk to the customers and public to draws the conclusions regarding the
objective.
For visiting the customers and publics to collect the relevant information; a questionnaire has to be designed. The questionnaire was
designed in such a manner to achieve the objective of the research.
The sample size taken is 100 customers and publics.

Type of research
In this project I have used Descriptive to get a holistic viewpoint of Aviation Industry.
Descriptive Research:
This is kind of research structure which is concerned with describing the characteristics of the problem. In this way the main purpose of such a
research design is to present a descriptive picture about the investors problem on the basis of actual facts. For this it is important to obtain the
complete and actual information about the subjects.
METHODS OF COLLECTING PRIMARY DATA
Questionnaire Method
In this project I have taken the questionnaire method for collecting necessary information. In this method a questionnaire is given to the person
concerned with question to answers the question and return the questionnaire. A questionnaire consists of number of question printed in a
definite order on a form or a set of form.
Nature of research
Quantitative type of research has been used. As all the data was based on numerical figures obtained in the survey.

Type of questions

The questions were self-administered, with a view to obtain maximum information from the respondent that is why the questions were
straightforward.
TYPE OF QUESTIONNAIRE
The entire questionnaire was standardized and formalized.
SOURCE OF DATA
Primary Data
Secondary Data

SELECTION OF THE SAMPLE/SAMPLING PLAN

This is one of the most important steps of a research design procedure. Generally in most of the marketing studies on sample or most of the
sub group of the total population pertaining to the subject is included on the place of the universe.
The following things are primarily considered in the sample:

Sample Size Sample size is taken of 100 consumers.

Sample Population Delhi, dehradun, Nainital.

Sampling Methods - Convience sampling is used.

SECONDARY DATA COLLECTION

Secondary data is collected from various sources such as internet, newspapers, books, etc.

Chapter 2
BUSINESS OVERVIEW
Reliance Capital, a constituent of CNX Nifty Junior and MSCI India, is a part of the Reliance Group. It is one of India's leading and amongst
most valuable financial services companies in the private sector.
Reliance Capital has interests in asset management and mutual funds; life and general insurance; commercial finance; equities and commodities
broking; investment banking; wealth management services; distribution of financial products; exchanges; private equity; asset reconstruction;
proprietary investments and other activities in financial services.
Reliance Mutual Fund is amongst top two Mutual Funds in India with over six million investor folios. Reliance Life Insurance and Reliance
General Insurance are amongst the leading private sector insurers in India. Reliance Securities is one of Indias leading retail broking houses.
Reliance Money is one of Indias leading distributors of financial products and services.
Reliance Capital has a net worth of Rs. 11,991 crore (US$ 2.2 billion) and total assets of Rs. 40,588 crore (US$ 7.5 billion) as on March 31, 2013.
Business mix of Reliance Capital

Asset
Management

Mutual Fund, Offshore Fund, Pension fund, Portfolio Management

Insurance

Life Insurance, General Insurance

Commercial
Finance

Mortgages, Loans against Property , SME Loans, Loans for Vehicles,

Loans for Construction Equipment, Business Loans, Infrastructure
financing

Broking
Distribution

and Equities, Commodities and Derivatives, Wealth Management Services,

Portfolio Management Services, Investment Banking, Foreign Exchange,
Third Party Products

Other Businesses Private Equity, Institutional Broking, Asset Reconstruction, Venture

Capital

COMPANY HISTORY
Reliance Capital Limited (RCL) was incorporated in year 1986 at Ahmedabad in Gujarat as Reliance Capital & Finance Trust Limited. The name
RCL came into effect from January 5, 1995. In 2002, RCL shifted its registered office to Jamnagar in Gujarat before it finally moved to Mumbai
in Maharashtra, in 2006.
In 2006, Reliance Capital Ventures Limited merged with RCL and with this merger the shareholder base of RCL rose from 0.15 million
shareholders to 1.3 million.
RCL entered the Capital Market with a maiden public issue in 1990 and in subsequent years further tapped the capital market through rights issue
and public issues. The equity shares were initially listed on the Ahmedabad Stock Exchange and The Stock Exchange Mumbai. Presently the
shares are listed on The Stock Exchange Mumbai and the National Stock Exchange of India.

RCL in the initial years engaged itself in steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits. Later,
in 1993 diversified its business in the areas of portfolio investment, lending against securities, custodial services, money market operations,
project finance advisory services, and investment banking.
RCL was accredited a Category 1 Merchant banker by the Securities Exchange Board of India (SEBI). It had lead managed/co-managed 15 issues
of an aggregate value of Rs. 400 crore and had underwritten 33 issues for an aggregate value of Rs. 550 crore. All these companies were listed on
various exchanges.
RCL obtained its registration as a Non-banking Finance Company (NBFC) in December 1998. In view of the regulatory requirements RCL
surrendered its Merchant Banking License.
RCL has since diversified its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and
industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of
financial products and other activities in financial services.

CHAIRMAN OF RELIANCE CAPITAL

Shri Anil D. Ambani, regarded as one of the foremost corporate leaders of contemporary India, Shri Anil D. Ambani, is the Chairman of Reliance
Capital Limited, Reliance Infrastructure Limited, Reliance Communications Limited and Reliance Power Limited. He is also on the Board of
Reliance Infratel Limited and Reliance Anil Dhirubhai Ambani Group Limited. He is the President of the Dhirubhai Ambani Institute of
Information and Communication Technology, Gandhinagar, Gujarat.

TOP MANAGEMENT OF RELIANCE CAPITAL

Reliance Capital is anchored by a team of experienced and committed visionaries who are
dedicated towards scaling the company to greater heights through innovation and excellence;
thereby creating value for all our stakeholders.
Amit Bapna (Chief Financial Officer, Reliance Capital)
Amitabh Mohanty (Head - Debt Strategy)
Anup Rau - (Chief Executive Officer and Executive Director, Reliance Life Insurance)
Arun Hariharan (President, Quality and Knowledge Management, Reliance Capital)
Asokan Arumugam (Chief Compliance Officer, Reliance Capital)
K. Achuthan (Chief People Officer, Reliance Capital)

K. V. Srinivasan (Chief Executive Officer, Reliance Commercial Finance)

Lav Chaturvedi (Chief Risk Officer, Reliance Capital)
Madhusudan Kela (Chief Investment Strategist, Reliance Capital)
Rakesh Jain (Chief Executive Officer, Reliance General Insurance)
Sam Ghosh (Chief Executive Officer, Reliance Capital)
Shirish Chitte (Chief Technology Office, Reliance Capital)
Sundeep Sikka (Chief Executive Officer, Reliance Capital Asset Management)

V. R. Mohan (President and Company Secretary )

Vikrant Gugnani (Chief Executive Officer, Reliance Securities Limited)

VISION
Reliance Capital's vision is that:
By 2015, it will be a company that is known as:
"The most profitable, innovative, and most trusted financial services company in India and
in the emerging markets".
In achieving this vision, the company will be both customer-centric and innovation-driven.

Reliance Capital has interests in

Asset management.

Mutual funds.

Life and general insurance.

Private equity and proprietary investments.

Stock broking.

Reliance PMS.

Depository services and financial products.

Consumer finance and other activities in financial services.

ICEX
Commodity markets regulator FMC said it has given approval to the Anil Ambani Group to acquire 26 per cent stake in Indian Commodity
Exchange (ICEX) from one of its promoters, Indiabulls group. "We have given permission to Anil Ambani Group to buy 26 per cent stake in
ICEX from Indiabulls," Forward Markets Commission (FMC) Chairman B C Khatua said.At present, Indiabulls holds 40 per cent in ICEX, of
which it wants to sell 26 per cent stake in the bourse to ADAG. MMTC has 26 per cent stake in ICEX, which is the country's fourth national
commodity exchange launched late last year. "We entered the exchange business in late 2009. We have already started a spot exchange and have a
26 per cent stake in a commodities exchange," ADAG Group Chairman Anil Ambani had said yesterday at the AGM of group firm Reliance
Capital. The Group had also announced its intention to enter all segments of the exchange business. Reliance Capital is already in the spot
commodity space. Another group firm Reliance Money also has stake in the national commodity exchange NMCE.ICEX, a national-level
commodity bourse, offers futures trading in 18 commodities, including bullion, metals and agricultural items. The exchange clocked a business of
130 billion (US$2.2 billion) in the first fortnight of September.
Reliance Mutual Fund is India's no.1 Mutual Fund. Reliance Life Insurance is one of India's fastest growing life insurance company and among
the top 4 private sector insurers. Reliance General Insurance is one of India's fastest growing general insurance company and among the top 3
private sector insurers. Reliance Money is the largest brokerage and distributor of financial products in India with over 2.7 million customers and
has the largest distribution network. Reliance Consumer finance has a loan book of over 89 billion (US$1.5 billion) at the end of December
2008.
Reliance Capital has a net worth of 72.5 billion (US$1.2 billion) and total assets of 223.4 billion (US$3.8 billion) as of December 31, 2008.

Reliance Capital is a constituent of S&P CNX Nifty and MSCI India and also features in the Forbes list of Worlds largest 2000 public
companies.

Reliance Securities, subsidiary of Reliance Capital achieved a pan-India presence with over 5,000 outlets and the average daily turnover had
increased to 23 billion (US$400 million) in 2010.

CORPORATE SOCIAL RESPONSIBILITY

Organizations, like individuals, depend for their survival, sustenance and growth on the support and goodwill of the communities of which they
are an integral part, and must pay back this generosity in every way they can...
This ethical standpoint, derived from the vision of our founder, lies at the heart of the CSR philosophy of the Reliance Group.
Reliance Group is committed to being an ideal corporate citizen and doing more than its fair share to support various deserving causes, in the
field of medicine in particular; setting up and operating Kokilaben Dhirubhai Ambani Hospital. Reliance Capital supports this and other CSR
ventures.
Each of Reliance Capitals different businesses vigorously implements their own CSR initiatives. Indeed, their CSR efforts are counted when
calculating the businesss performance. Some of the work done by them include blood donation camps, donation of old computers to various
schools, donations are given to NGOs working with children or the aged or to the Missionaries of Charity across the country, direct cash aid for
paying the medical expenses of life threatening requirements for some under-privileged people etc.
Other businesses work with self-help groups to provide them with funding and other advice to function better. Some other businesses have also
worked with educational institutions to promote financial literacy and financial inclusiveness.
This is in addition to supporting the charitable activities of the Reliance Group, both in healthcare and in caring for older people Silvers. The
Company also follows an active program of energy abatement. This is not just in its corporate office, but also in other large offices in big cities.

INDUSTRY PROFILE

Valuation
Methodologies

There is two ways of valuation of a companyTop Down Approach-In the top-down approach, an analyst investigates both international and domestic economic indicators, such as GDP
growth rates, energy prices, inflation, interest rates etc.
Bottom Up approach- In the bottom-up approach, the analyst starts the search with specific businesses, irrespective
of their industry/region.

I have adopted the top down approach as I find it more efficient way of evaluating a sector. The stock
market does not operate in a vacuum. It is an integral part of the whole economy of a country.

Top-Down Valuation
Economy
To gain an insight into the complexities of the stock market one needs to develop a sound economic understanding and be able to
interpret the impact of important economic indicators, which may be studied to assess the national economy as a whole. The
leading indicators predict what is likely to happen to an economy. An overall growing or a contracting economy affects every industry in
the country positively or negatively. One can seldom find flourishing industries in an otherwise stagnant economy.
Economic IndicatorsAn economic indicator (or business indicator) is a statistic about the economy.
Procyclic: A procyclic (or procyclical) economic indicator is one that moves in the same direction as the economy. Therefore, if the
economy is doing well, this number is usually increasing, whereas if we are in a recession this indicator is decreasing.
Counter cyclic: A counter-cyclic (or countercyclical) economic indicator is one that moves in the opposite direction as the economy.
Acyclic: An acyclic economic indicator is one that is not related to the health of the economy and is generally of little use.
Each of the statistics in these categories helps create a picture of the performance of the economy and how the economy is
likely to do in the futureTotal Output, Income, and Spending
These tend to be the broadest measures of economic performance and include such statistics as the Gross Domestic Product which is used
to measure economic activity and thus is both procyclical and a coincident economic indicator. The Implicit Price Deflator is a measure of
inflation.
Employment, Unemployment, and Wages The unemployment rate is a lagged, countercyclical statistic. The level of
civilianemployment measures how many people are working so it is procyclic.
Production and Business Activity
These statistics cover how much businesses are producing and the level of new construction in the economy. Changes in business
inventories is an important leading economic indicator as they indicate changes in consumer demand.
Prices
This category includes both the prices consumers pay as well as the prices businesses pay for raw materials and include:
Producer Prices [monthly]
Consumer Prices [monthly]
Prices Received And Paid By Farmers [monthly]

Money, Credit, and Security Markets

These statistics measure the amount of money in the economy as well as interest rates and include:
Money stock (M1, M2, and M3) [monthly]
Bank Credit at all commercial banks [monthly]
Consumer credit [monthly]
Interest rates and bond yields [weekly and monthly]
Stock prices and yields [weekly and monthly]
Government Finance
These are measures of government spending and government deficits and debts:
Budget Receipts (Revenue)[yearly]
Budget Outlays (Expenses) [yearly]
Union Government Debt [yearly]
Industry
Fundamental analysis consists of a detailed analysis of a specific industry; its characteristics, past record, present state and future
prospects. The purpose of industry analysis is to identify those industries with a potential for future growth and to invest in equity shares
of companies selected from such industries. We look at the product lifecycle phase and competitive outlookin a particular industry to
gauge the overall growth and competitive rivalry amongst the players in the industry.
Company
At the final stage of fundamental analysis, the investor analyses the company. This analysis has two thrusts:
1. How has the company performed vis-a-vis other similar companies? and
2. How has the company performed in comparison to earlier years
It is imperative that one completes the economic analysis and the industry analysis before a company is analysed because the companys
performance at a period of time is to an extent a reflection of the economy, the political situation and the industry.
The different issues regarding a company that should be examined are:
1. The Management
2. The Company
3. The Annual Report
4. Cash flow
5. Ratios

Economic Analysis

Following the slowdown induced by the global financial crisis in 2008-09, the Indian economy responded strongly to fiscal and
monetary stimulus and achieved a growth rate of 8.6 per cent and 9.3 per cent respectively in 2009-10 and 2010-11, but due
to a combination of both external and domestic factors, the economy decelerated growing at 6.2% and an estimated 5% in
2011-12 and 2012-13 respectively. The Economic Survey 2012-13, presented by the Finance Minister Shri P. Chidambaram in
the Lok Sabha predicts that the global economy is also likely to recover in 2013 and various government measures will help in
improving the Indian economys outlook for 2013-14. While Indias recent slowdown is partly rooted in external causes,
domestic causes are also important.
The slowdown in the rate of growth of services in 2011-12 at 8.2%, and particularly in 2012-13 to 6.6 percent from the doubledigit growth of the previous six years, contributed significantly to slowdown in the overall growth of the economy, while some
slowdown could also be attributed to the lower growth in agriculture and industrial activities. But despite the slowdown, the
services sector has shown more resilience to worsening external conditions than agriculture and industry. For improved
agricultural growth, the survey underlines the need for stable and consistent policies where markets play an appropriate role,
private investment in infrastructure is stepped up, food price, food stock management and food distribution improves, and a
predictable trade policy is adopted for agriculture. FDI in retail allowed by the government can pave the way for investment in
new technology and marketing of agricultural produce in India. Fast agricultural growth remains vital for jobs, incomes and
food security.

Aviation Industry: An Introduction.

Air transport industry is a service industry catering to the needs of air transport. Airports and airlines are the major constituents of the industry
who are interdependent as well as interlinked in carrying on their business. The industry has direct impact on the social, economic and political
processes .It facilitates the economic development of a region and serves as catalyst for the tourism and technology industry. Globalization erases
the national boundaries for economic purposes. Everything is transformed into a global scenario and creates need for the movement of people and
goods between countries. In this increased economic activity air lines play a vital role in carriage of passenger and freight.
India aviation industry promises huge growth potential due to
Large and growing middle class population
Favourable demographics
Rapid economic growth.
Tourism driving growth.
Higher disposable incomes
Rising aspirations of the middle class
Overall low penetration levels (less than 3%)

Despite strong growth, air travel penetration in India remains among the lowest in the world. In fact, air travel penetration in India is less than
half of that in China where people take 0.2 trips per person per year; indicating strong long term growth potential. A comparative statistic in
United States, the worlds largest domestic aviation market stands at 2 trips per person per year.

History of Aviation Industry

Tata Services became Tata Airlines and then Air-India and spread its wings as Air-India International. The domestic aviation scene, however, was
chaotic. When the American Tenth Air Force in India disposed of its planes at throwaway prices, 11 domestic airlines sprang up, scrambling for
traffic that could sustain only two or three. In 1953, the government nationalized the airlines, merged them, and created Indian Airlines. For the
next 25 years JRD Tata remained the chairman of Air-India and a director on the board of Indian Airlines. After JRD left, voracious unions
mushroomed, spawned on the pork barrel jobs created by politicians. In 1999, A-I had 700 employees per plane; today it has 474 whereas other
airlines have 350.
For many years in India air travel was perceived to be an elitist activity. This view arose from the Maharajah syndrome where, due to the
prohibitive cost of air travel, the only people who could afford it were the rich and powerful.

In recent years, however, this image of Civil Aviation has undergone a change and aviation is now viewed in a different light - as an essential link
not only for international travel and trade but also for providing connectivity to different parts of the country. Aviation is, by its very nature, a
critical part of the infrastructure of the country and has important ramifications for the development of tourism and trade, the opening up of
inaccessible areas of the country and for providing stimulus to business activity and economic growth.

< 1953
1953

1986
1994

1995

1997
2001
2003
2005
2007

2010
2011

2012

Major Milestones
Nine Airlines existed including
Indian Airlines & Air India
Nationalization of all private
airlines through Air Corporations
Act;
Private players permitted to
operate as air taxi operators
Air Corporation act repealed;
Private players can operate
schedule services
Jet, Sahara, Modiluft, Damania,
East West granted scheduled
carrier status
4 out of 6 operators shut down;
Jet & Sahara continue
Aviation Turbine Fuel (ATF) prices
decontrolled
Air Deccan starts operations as
Indias first LCC
Kingfisher, SpiceJet, Indigo, Go
Air, Paramount start operations
Industry consolidates; Jet
acquired Sahara; Kingfisher
acquired Air Deccan
SpiceJet starts international
operations
Indigo starts international
operations, Kingfisher exits LCC
segment
Government allows direct ATF
imports, FDI proposal for allowing
foreign carriers to pick up to 49%
stake under consideratio

The Indian aviation sector was

exposed to intense competition with
the advent of a low-cost airline - Air Deccan back in 2003. The success of Air Deccan spurred the entry of other LCCs like SpiceJet, Indigo, Go
Air and subsequently low fare offerings from Jet airways and Kingfisher airlines. As a result, the sector which was completely dominated by fullservice airlines till a decade ago is now dominated by low-cost airlines. However, longer term viability of LCCs models in India remains to be
seen (Kingfisher exited the segment recently) as airport charges are same for FSCs and LCCs in India.
Categories

Remarks

Single model of aircraft

Operate on secondary airport
Point to Point Model
Single class configuration
No In-flight services
Fewer employees per aircraft
E-Ticketing

Ancillary Revenues

Reduces maintenance and inventory

cost.
Lower charges, lower turnaround time
due to less congestion.
Improves aircraft utilization by
reducing waiting time at airports.
More seats per flight so spread costs
over a larger base.
Helps to keep the costs and hence the
fares low.
Reduces employee cost and leads to
higher employee productivity.
The traditional method of ticketing
costs around US$ 4.5 per passenger
whereas the cost of an e-ticket comes
to US$ 1 which helps reduce selling
expenses.
Primarily on-board sales. Provides
alternate source of revenues helps to
reduce break-even PLF

Defining Low Cost Carriers

Simple Product

No meals; drinks and snacks for free

Narrow seating (greater capacity)

No seat reservation; free-seating

No frequent-flyer programs

Positioning

Non-business passengers, leisure traffic, price-conscious business passengers

Short-haul point-to-point traffic with high frequencies

Aggressive marketing

Secondary airports

Competition with all transportation carriers

Low Operating Costs

Low wages, low airport fees

Low costs for maintenance, cockpit training and standby crews due to homogeneous fleet

High resource productivity: short ground waits due to simple boarding processes, no air freight, no hub services, short cleaning times

Lean sales (high percentage of online sales)

Challenges faced by Indian Aviation industryThe domestic airlines industry is facing significant operating (slowing growth, rising fuel costs) and non-operating (interest costs, rupee
depreciation) challenges as evident in the quarterly performance trends of listed airline companies.
Sales Growth: After a strong rebound in 2010, the tax growth has been moderating over the last few quarters due to moderating economic
growth and weak industrial activity. Besides, severe competitive pressure from domestic LCC players (rapidly gaining market share) and Air
India (trying to maintain market share) have resulted in price wars (at times below cost pricing), lowered yields and moderated sales growth for
the airlines.
Rising ATF Prices & Steep Rupee Depreciation: The airlines industry had been severely impacted by the significant increase in ATF prices (up
57% in last 18 months) as Indian Carriers do not hedge fuel prices and have exhibited limited ability to charge fuel surcharges due to irrational
and undisciplined pricing dictated by competition rather than costs / demand.
Profit Margins: With combined impact of 1) moderating tax growth 2) lower yields due to excessive competitive 3) rising ATF prices 4) steep
rupee depreciation and 5) rising debt levels and interest costs, the profitability margins of the airlines industry have been severely impacted.
Indian carriers could be posting staggering losses of $2.5 billion (~Rs 12,500 crore) in 2011-12, worse than the losses of 2008-09 when traffic
was declining and crude oil prices spiked to $150 per barrel.
Overall, the industry has been marred by cost inefficiencies and is bearing the brunt of aggressive price cuts, rising costs, expensive jet fuel, a
weaker rupee, high interest payments and hence mounting losses. The government support required to bailout the loss making Air India has
increased substantially; while the leading private players like Kingfisher Airlines, Jet Airways and SpiceJet are making significant losses. With
Banks unwilling to enhance their exposure to the industry, recast their loans or pick up equity stakes without viable business plans, industry needs
to come out with strong equity infusion plans.

FDI in Aviation: Feasibility and Impact Analysis for various stakeholders

FDI Proposal: The Civil Aviation Ministry is expected to soon circulate a proposal before the union cabinet to consider allowing up to 49%
equity investment by foreign carriers in domestic airlines. In case of listed airlines, if the proposal does not get a waiver from SEBIs Takeover
Code, foreign carriers may have to first make an open offer of 26% stake to public shareholders and later acquire up to 23% stake (from
promoters or fresh equity), such that their stake remains within the 49 % cap.
Indian Carriers: The FDI proposal, if approved, would certainly be an important milestone in the aviation sector and may provide much-needed
relief to the domestic aviation industry reeling under the pressure of mounting losses and rising debt burden. Besides, the move will help bring
global expertise and best industry practices over the medium term.
Foreign Carriers: It will not just provide entry into one of the fastest growing aviation market globally but also an opportunity to establish India
as their hub for connections between US/Europe and South-East Asian countries. While full-service airlines could help them further consolidate
their market position on international routes (and improve connectivity within India), acquisition of low-cost airlines could help them compete in
a market where travellers are highly price sensitive.
Consumers: New players could enter the market as they could now have a strategic foreign player with deep pockets to support the airline in
difficult times. Besides, it would provide more flexibility in international travels when one travels through the same airline domestically as well
as internationally. Overall, this could increase competition, offer more alternatives, reduce tariffs and improve customer service standards over the
medium term.

COMPANYIn this project I have taken the valuation of three companies in Jet Airways
Spice jet
Another company which seems to be doing good in the-