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Kingfisher stock: Is it a vulture's pick?


Kingfisher stock: Is it a vulture's pick?
At the heart of the Satyam Computers (now Mahindra Satyam) crisis the stock went into an abyss, plunging to a low of Rs 11.05. It has returned more than 700% for astute investors who had picked the stock sometime in January 2009. Compare this with just 32% returns in a bank FD (10% each year from Jan 2009 to March 2012).

At the peak of a crisis many stocks like Wockhardt (once debt ridden), Ranbaxy (30 drugs banned by FDA), Bank of Rajasthan (ban by SEBI on Tayal group companies) and several others were available at dirt cheap valuations and have recovered sharply ever since (Bank of Rajasthan taken over by ICICI Bank).


Does this build a case for investing in the Kingfisher Airlines stock?
The Kingfisher Airlines stock is currently traded at just Rs 17, after having touched a 52-week high of Rs 49. If you have a white knight in shining armour takeover the operations of the company, rest assured that you would never get the stock at Rs 17.

If you go by the history of the airlines business, then there has always been a stake sale at some point in time. The NEPC group bought over Damania Airways, while Modiluft was bought over by Ajay Singh, Air Deccan by Kingfisher Airlines and so on.

It's not typical only to airlines, but across various industries including banks, where the larger ones cobble up the smaller ones which are doing badly. The point is that mostly companies with a solid brand and sound operations, do not collapse, but finally do find a knight in white armour to takeover the operations.

When this happens the stock price jumps and an investor who had a penchant for risk and had picked up the stock at the heart of the crisis, invariably ends up making money. Whether that will happen in the case of Kingfisher Airlines, as it had in the case of Satyam, Bank of Rajasthan, Wockhardt, Ranbaxy and several others only time will tell.


In any case fortune always favours the brave.

Story first published: Wednesday, April 4, 2012, 10:22 [IST]
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