This Is What A Buyer Will Have To Pay For Air India

A potential buyer of Air India will have to pay at least Rs 9,469 crore for buying 76 percent stake in the carrier that the government plans to sell in what could be India's biggest asset sale of a state-run company.

That's according to SBICAP Securities Ltd. The broking arm of India's largest lender, State Bank of India, factored in debt, operating profit and unabsorbed depreciation while pegging the total valuation of the state-run airline at Rs 12,459 crore.

India will hive off 76 percent stake in Air India, including its 100 percent ownership in overseas budget carrier Air India Express Ltd. and 50 percent stake in the ground handling unit Air India SATS Airport Services Pvt. Ltd., according to a document uploaded on the website of the Civil Aviation Ministry. The buyer will have to take on more than half of its Rs 54,000-crore debt.

SBICAP Securities expects the state-owned airline to earn operating profit of at least Re 1 per available seat kilometre in the ongoing financial year that began this month. That would translate into an operational profit of close to Rs 7,630 crore. In comparison, the airline earned earnings before interest, tax, depreciation, amortisation and rental cost of Rs 4,631 crore in the year ended March 2017 at an EBITDAR per available seat kilometre of Rs 0.7.

The buyer will have take on debt worth Rs 33,392 crore. That may not be a concern as nearly 50 percent of the debt is backed by assets—86 owned and leased aircrafts.

Air India also has an unabsorbed depreciation of Rs 31,806 crore on its books that will help the buyer reduce the tax liability when the airline becomes profitable in future. Unabsorbed depreciation is unclaimed expenditure which could not be accounted in profit and loss account due to lack of sufficient income. It can be carried forward for any number of years.

As the unabsorbed depreciation would spread across several years, SBICAP Securities said its present value would be close to Rs 5,700 crore.

International routes and extensive connectivity make Air India lucrative for potential bidders. The airline has close to 2,800 international prime time slots per week in 39 destinations and more than 4,000 domestic slots in 54 destinations.

Also Read: What Air India's Potential Buyer Will (And Won't) Get