Tata increases stake in AirAsia India; key takeaways: ICICI Securities
Representative image
AirAsia group, on Dec 29, '20, announced it will be selling 32.67 per cent stake in AirAsia India to Tata Sons for a consideration of US$37.7mn (Rs2.8bn) with a provision to sell its remaining 16.3% stake for US$18.8mn, which implies an equity valuation of Rs8.5bn for AirAsia India. This deal indicates 1) possible consolidation within the industry, 2) strategic commitment of Tata group towards the aviation sector and 3) likely low valuations for weaker players. AAI stake sale is at a significant valuation discount to listed peers.
AirAsia India was a joint venture between AirAsia group and Tata Sons in 2014 with Tata group owning 51% stake. This transaction will increase Tata Sons' stake to 83.67% in the airline. As per media reports, AirAsia can be used to bid for Air India.
According to ICICI Securities, as per Nov'20, six players held 99% market share in terms of domestic passenger traffic with 6.6% share under AirAsia India. If Tatas successfully acquire Air India and consolidate Vistara and Air Asia India under its brand, the industry will convert from 6 to 4 player industry comprising Tata group, Indigo, SpiceJet and Go Airways.
Tata group has demonstrated that it remains highly committed towards aviation sector as its current portfolio includes majority stakes in Vistara and AirAsia and it remains a possible bidder of Air India. Air India bidding has been divided in two stages. In stage 1, expression of interest has been submitted by the interested bidders, and they will be shortlisted based on eligibility criteria and other terms mentioned in preliminary information memorandum. In stage 2, starting from 5th Jan 2021, shortlisted bidders will be provided with request for proposal and then there will be a transparent bidding process.