Kingfisher stock falls 12.47% to a new low

The stock market further reacted negatively on Friday to Kingfisher Airline’s plan to do away with no-frills service. The UB Group’s 2005-founded subsidiary’s stock crashed 12.47 per cent — the second consecutive fall following Wednesday’s announcement by chairman Vijay Mallya.

The city-based airline is in the red with accumulated losses crossing Rs 5,000 crore last year besides a Rs 6,000-crore debt. Its management is facing uncomfortable questions following an internal audit report that questioned the airline’s accounting practices and its ability as a “growing concern”. Mallya, however, told shareholders that the auditors had concurred with management’s adoption of going concern concept while finalising the accounts.

On Friday, the airline’s stock opened at Rs 22.10 and fell to a new intra-day low of Rs 18.85 before closing at a new low at Rs 20. This month alone has seen the stock fall from a high of Rs 28.4 to close at Rs 20. In the last two days, the airline stock has fell nearly 20 per cent.

Senior officials with Vijaya Bank and the State Bank of India said the sharp drop in value of ailing airlines company's share is a bad news. Banks have converted debt worth over Rs 600 crore into equity shares in March 2011. The conversion was done at price around Rs 64. These shares are part of investment book which is marked to market. Banks will have to make provisions for huge depreciation in share value.

In the last six months, aviation stocks have tumbled over 60 per cent. Kingfisher’s stock price touched a high of Rs 91 last October, but it has been slipping since then. All the three listed airlines —Jet Airways, Kingfisher and SpiceJet —have posted losses in the first quarter of 2012. With the second-quarter results expected to be negative, markets are not bullish about them.

Kingfisher commands close to one-fifth market share — next only to Jet Airways-Jetlite.

It has a seat factor of 75 per cent. While Jet is deploying its maximum capacity in low-cost service, Kingfisher is adopting a contrasting approach by doing away with no-frills service. The airline plans to expand capacity by 10 per cent. It also hopes this will increase its revenue, as a complete economy-class service has better yields than low-cost service.