Airline, hotel stocks catch cold on flu fear

The rapid spread of swine flu has hit share prices of top airline and hospitality companies as market players fear a sharp drop in travel and tourism due to the flu scare. In contrast, shares of top pharmaceutical companies have seen a sharp rise during the period.

In the last six trading sessions, while the Sensex has declined 5.55 per cent from its calender year closing high of 15,924 on August 3, shares of top airline companies, including Jet Airways, Kingfisher Airlines and SpiceJet, and top hotel companies, including Indian Hotels, Hotel Leela Venture, TajGVK Hotels, Asian Hotels and EIH Associates, have declined in the range of 5-15 per cent. Shares of the Tatas’ hospitality companies have fallen the most compared with other top players in the business.
 

FLU FALL
Stocks	% fall in 6 trading sessions
Jet Airways	9.58
Kingfisher Airlines	6.71
SpiceJet	6.32
Indian Hotels	13.11
Viceroy Hotels	15.65
Hotel Leela	10.10
TajGVK Hotels	11.95
Royal Orchid Hotels	9.85
Asian Hotels	5.00
EIH Assoc	4.49
Sterling Holiday Resorts	15.45

“Clearly, travel, tourism, entertainment and retail sectors will be the worst impacted, whereas pharma companies manufacturing disposable masks and Tamiflu tablets stand to gain from a surge in demand,” said CLSA research analyst Aniradha Dutta in a report on August 10.

The H1N1 virus, commonly known as swine flu, emerged in April in the United States and Mexico, and has spread globally. According to conservative estimates, nearly 15 people have died of swine flu in India and over 200 are being treated for the virus. In Mumbai, the financial capital of the country, the government has announced closure of schools for seven days and movie theatres and malls for three days.

“Markets are witnessing some impact of swine flu and if the scare continues, hotel, tourism and airline stocks could come under further pressure,” said Ambrish Baliga, vice-president of Mumbai-based Karvy Stock Broking.

Though global markets have not pressed the panic button yet, there could be some worry if the virus spreads, according to some analysts. Baliga, however, says that the panic in the stock market is unwarranted.

“At present, we are in the thick of the swine flu scare. Markets will start discounting it in some time. In the past, it has been noticed that any major epidemic does not last for more than two-three months. The stocks will present a good buying opportunity now. The scenario will further improve as the Commonwealth Games in September give an impetus to travel and tourism in country,” said Baliga.

Meanwhile, shares of domestic drug firms that make the generic version of Roche’s Tamiflu, used to treat the flu virus, are gaining momentum. While Strides Archolabs has gained over 10 per cent in past six trading sessions, Ranbaxy and Cipla have gained nearly 4 per cent.

The government’s plan to stockpile 20 million dosages of Tamiflu drug is expected to benefit Ranbaxy, Cipla, Strides and Hetero. This, however, would not have any major impact on these companies’ earnings, said a pharmaceutical analyst from a leading brokerage house.

Ranbaxy, majority-owned by Japan’s Daiichi Sankyo, produces oseltamivir bulk drugs and formulations. According to a company officials, it can provide close to a million capsules in the domestic market in the next few weeks.