Even as the Indian equity market is trading near its long-term average valuations, given the slowdown in corporate earnings in the past three years, the forward earnings multiple appears expensive compared to its median value for the period.

As per Bloomberg data, the Sensex is trading at one-year forward multiple of 15.2 times, which is 4% to 6% premium to its average multiple over the last three and five years, respectively. The ten-year average forward price-to-earnings multiple of the Sensex is 14.9 times.

As the corporate earnings started reflecting the slowdown in economic activity, analysts have argued whether lower valuation multiple may be the new normal for Indian equities.

This premise took a back seat last year, when the market was largely supported by the optimism around the general election and a subsequent clear majority won by the Bharatiya Janata Party. However, as the earnings numbers of India and looming analyst downgrades now are the key driver for market momentum, the Sensex may be looking at lower valuation multiple.

Recently, Kotak Institutional Equities argued that though the market appears reasonably valued with the Nifty trading at 15 times its expected earnings for FY17, valuations may start looking pricey once earnings estimates are cut further.

An earlier FE compilation shows that Sensex earnings grew nearly 2.5 times India’s annual GDP growth in the decade ending FY11. However, post that as the GDP growth slowed down to lower single digits, the earnings momentum has come off.

During the five years ended fiscal 2007-08, when India’s economy grew 8.7% per annum on an average, the earnings growth turned particularly strong at nearly 24% per year. However, in the subsequent four years ended FY12 when the mean GDP rate came down to 7.7%, average earnings growth stood at about 10%. Over these four years,the Sensex one-year forward P/E multiple stood at around 13 times compared to its average of about 15 times in the previous five years.

Shares of Reliance Communications on BSE surged over 9 per cent today to Rs 71.15 on stake sale buzz.

Reliance Communications (RCom) is close to finalising a deal to sell its entire stake in tower unit Reliance Infratel, sources aware of the development said.

RCom owns about 96 per cent stake in Infratel and the sale would fetch it around Rs 22,000 crore, which will be used to retire some debt.

The sources further added the deal values Infratel at around Rs 22,500 crore. Reliance Infratel has about 43,500 mobile towers.

The debt of RCom stood at around Rs 38,000 crore.

According to sources, the deal is almost finalised and is likely to be announced within 10 days.

When contacted, RCom declined to comment.

A few months ago, RCom had said that it had short-listed bidders that have sought to acquire up to 100 per cent stake in Infratel.

RCom is looking to monetise its non-core assets to bring down the the debt-to-Ebitda ratio to about 3 in 18-24 months.

The company’s net debt-to-Ebitda ratio is about 4.64.

To achieve this target, the Anil Ambani group firm is planning to hive off its DTH business, sell stake in international operations at Reliance Globalcom and divestment of Infratel, among others.

In general terms, debt-to-Ebitda ratio is the measure of the ability of a firm to pay off its debts and is a useful tool in assessing the creditworthiness of a company.

Shares of Reliance Communications on BSE surged over 9 per cent today to Rs 71.15 on stake sale buzz.

In the past one year, the share price of Spicejet sky rocketed 339 per cent to Rs 68.85 on November 23. (Photo: PTI)

For years the Indian aviation sector experienced turbulent times. The stocks of the aviation companies also went through a rough patch. In the past four years till November 24, 2014, shares of Jet Airways and SpiceJet slid 71.45 per cent and 81.52 per cent, respectively. The benchmark index BSE Sensex jumped 46 per cent during the same period.

However, with the sharp drop in Jet Fuel or Aviation Turbine Fuel prices, the aviation sector staged a smart recovery with shares of Spicejet soaring over 300 per cent in a year. Shares of SpiceJet hit their new 52-week high of Rs 72.50 on Tuesday.

In the past one year, the share price of Spicejet sky rocketed 339 per cent to Rs 68.85 on November 23 this year. The scrip was at Rs 15.68 on November 24 last year. Share price of its competitor Jet Airways climbed 84.6 per cent during the same period. Recently, listed Interglobe Aviation shares also gained nearly 20 per cent in the past eight trading session. Interglobe Aviation listed on bourses on November 10 this year. 

Kunj Bansal, executive director and chief investment officer, Centrum Wealth, said, “The biggest boost has come in the form of a steep drop in Jet Fuel or Aviation Turbine Fuel (ATF) prices. Fuel prices have declined by about 40 per cent since the last quarter of 2014. According to industry data, this could bring down the cost for an Indian Carrier to 30-35 per cent from 45 per cent reported last year.”

India has the fastest growing domestic aviation market in the world, ahead of China and the US. According to the International Air Travel Association (IATA), the number of air passengers rose almost 20 per cent in the eight months ended August 31, 2015 compared with the same period a year ago. According to a report commissioned by Vistara Airlines and conducted by the Centre for Asia Pacific Aviation (CAPA), the number of air travellers in the country is slated to rise to 218 million by 2025 from 70 million in 2015. Aviation could contribute 5 per cent to the country’s GDP or $250 billion by 2025.

The SpiceJet makeover earlier this year also came as a breath of fresh air for the industry. Ever since the Kingfisher debacle, D-Street distanced itself from the aviation stocks. SpiceJet was also on way to similar downfall with mounting debt, cancelled flights, unpaid salaries, quarterly losses and no capital infusion. But in Q4FY2015, Ajay Singh, one of the airline’s founder members took over its reins and things started looking up. With recapitalisation, the company settled outstanding dues, renegotiated contracts, optimised aircraft utilisation and revenue maximisation. The stock is up a whopping 281 per cent on a year to date basis.

For the quarter ended September 2015, SpiceJet reported a net profit of Rs 23.77 crore on the back of a steep fall in fuel costs and other expenses. It had a net loss of Rs 310.45 crore in the year-ago period. However, SpiceJet’s total income from operations declined over 28 per cent to Rs 1,040.13 crore in July-September of the current fiscal.

Jet Airways reported net profit of Rs 87.59 crore for the last quarter ended September 30, 2015. The company reported net profit of Rs 69.82 in the same quarter last year.

For the year, ended March 2015, Spice Jet posted net loss of Rs 748.41 crore against net loss of Rs 1003.24 crore last year. In the financial year ended March 2012 and 2013, SpiceJet posted net loss of Rs 605.77 crore and Rs 191.08 crore, respectively. However, in FY 2010-11, it reported net profit of Rs 103.43 crore.

Jet Airways reported a consolidated net loss of Rs 2101.36 crore for the year ended March 2015 against net loss of Rs 4128 crore last year.

For the financial year ended March 2015, InterGlobe Aviation reported net profit of Rs 1,295.58, up 173 per cent, against Rs 474.44 crore in the previous financial year. The company registered net profit of Rs 987.3 crore in the financial year ended March 2013.

SpiceJet is reportedly planning to buy at least 150 new planes. The company is in talks with aircraft manufacturers to place orders for 100 narrow-bodied aircraft (Boeing 737 MAX or Airbus 320 Neo) and 50 turboprop aircraft. The company is buying large aircraft for metros and larger towns, while small aircraft for smaller regional towns. Currently, the company operates a fleet of 25 Boeing, two Airbus (on wet lease) and 14 Bombardier aircraft.

As part of its expansion plan, the low cost airline in November has launched direct flight service to Dubai from Amritsar.

In terms of On-Time Performance (OTP), SpiceJet remained on the second spot (86.9 per cent) after IndiGo (89.6 per cent) in October. The OTP numbers have been computed on the basis of four metro airports – Bengaluru, Delhi, Hyderabad and Mumbai, according to agencies.

According to Bansal, Indian airlines seem to be in a sweet spot currently. With fuel prices at an all-time low, the government pushing for over 50 per cent FDI in domestic carriers, air traffic showing strong growth and a number of fresh issuances in the aviation sector, domestic carriers look well placed in the short term. However, other overhangs continue to weigh on the Indian aviation sector. These are – higher government taxes/duties, high airport charges, MRO or Maintenance, Repair and Overhaul costs that are payable in dollars, which are continuously appreciating and of course, a competitive market.

Edelweiss in a research report in October said, SpiceJet has managed to discharge a significant portion of its liabilities and pare payables from Rs 1800 crore to Rs 1100 crore. Management is confident of a robust Q3, given the initial pre-booking trend ahead of the peak festive season. With the airline returning to normalcy, management has now shifted focus to growth.”

The stock soared 8.63 per cent to Rs 2,648 on BSE. On NSE, shares jumped 8.29 per cent to Rs 2,645.

Shares of Pfizer rose sharply by nearly 9 per cent on Tuesday after its parent Pfizer Inc’s announcement to buy Botox manufacturer Allergan in a record $160 billion deal, a biggest buyout in the global healthcare sector.

The stock soared 8.63 per cent to Rs 2,648 on BSE. On NSE, shares jumped 8.29 per cent to Rs 2,645.

The deal will technically see Dublin-based Allergan buying its much larger partner. It will allow New York-based Pfizer to shift base to Ireland for tax purposes.
Allergan shareholders will receive 11.3 shares in the combined company for each share held.
Pfizer investors will be able to opt for cash instead of stock in the combined company in exchange for their shares, provided the aggregate amount of cash to be paid is not less than $6 billion or more than $12 billion.

As per the definitive merger agreement that has been approved by the Boards of the two companies, Pfizer will combine with Allergan in a stock transaction currently valued at $363.63 per Allergan share, for a total enterprise value of approximately $160 billion, Pfizer said in a statement yesterday.