scorecardGo First Impact: Market capitalisation of 3 PSU Banks down by ₹7,500 crore as investors fret over their exposure to ailing airline
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Go First Impact: Market capitalisation of 3 PSU Banks down by ₹7,500 crore as investors fret over their exposure to ailing airline

Go First Impact: Market capitalisation of 3 PSU Banks down by ₹7,500 crore as investors fret over their exposure to ailing airline
Stock Market5 min read
  • Low-cost airline Go First’s insolvency proceedings have plunged shares of Central Bank of India, Bank of Baroda and IDBI Bank, with their combined market capitalisation declining by over ₹7,500 crore.
  • According to ratings agency Acuite, these three banks have a cumulative exposure of ₹3,051 crore to Go First.
  • On the other hand, stocks of rivals InterGlobe Aviation (IndiGo), SpiceJet and Jet Airways soared in morning trade on Wednesday.
Low-cost airline Go First’s insolvency proceedings have plunged shares of Central Bank of India, Bank of Baroda and IDBI Bank, all of which have a cumulative exposure of ₹3,051 crore to the troubled airline.

The three stocks fell by as much as 7% in morning trade on Wednesday, with their combined market capitalisation declining by over ₹7,500 crore.

Bank

CMP

Mcap change

Bank of Baroda

₹180.55

-₹3,904 crore

IDBI Bank

₹53.15

-₹1,828 crore

Central Bank of India

₹28.15

-₹1,780 crore

Total


-₹7,512 crore


Source: NSE, as on May 3, 2023 / Market capitalisation change compared to May 2, 2023

According to ratings agency Acuite, these three banks have a cumulative exposure of ₹3,051 crore to Go First.

Bank

Amount

Central Bank of India

₹1,562 crore

Bank of Baroda

₹1,430 crore

Deutsche Bank

₹1,320 crore

IDBI Bank Ltd.

₹59 crore

Axis Bank

₹30 crore

Others

₹1,200 crore

Total

₹5,600 crore


Source: Acuite Ratings & Research

The Wadia-group owned Go First had cancelled flights scheduled on May 3 and May 4 after the company filed an application for voluntary insolvency. It blamed faulty engines from US aircraft manufacturer Pratt & Whitney that led to grounding of half of its fleet.

The manufacturer hit back, stating that Go First has a “lengthy history of missing its financial obligations”.

According to Go First’s filing with the National Company Law Tribunal (NCLT), the airline has financial liabilities amounting to ₹6,521 crore as of April 28, 2023.

IndiGo, SpiceJet and Jet Airways stocks soar on Go First’s troubles

Go First’s peers InterGlobe Aviation (IndiGo), SpiceJet and Jet Airways’ stocks rallied in morning trade on Wednesday. IndiGo’s shares touched a new 52-week high, with all the three stocks rising by 5%.

SpiceJet has already begun efforts to cash in on Go First’s troubles – the airline has kicked off efforts to bring 25 aircraft back into service, tapping into the government’s Emergency Credit Line Guarantee Scheme (ECLGS).

“We are meticulously working towards return to service of our grounded fleet back in the air soon. Majority of the ECLGS funding received by the airline would be utilized for the same, which will help us capitalise and make the most of the upcoming peak travel season,” said Ajay Singh, Chairman and MD, SpiceJet.

Existing players in the Indian aviation sector are expected to benefit in case Go First is grounded, according to Jefferies’ analyst Prateek Kumar. “If the exit of GoFirst does happen, this would be at the margin positive for sector consolidation as this would mean one less player in the market,” Kumar said.

While SpiceJet itself is facing severe financial troubles with a negative net worth of ₹4,340 crore, its board had approved a restructuring of over $100 million in dues last month. It remains to be seen if Ajay Singh’s latest attempt to turnaround the carrier will pay off amidst Go First’s troubles.

Go Air - This is the first serious airline failure in India since Jet Airways in 2019. The 3 major reasons for insolvency 1. P&W engine availability took % planes grounded from 9% in FY19 to 50% in FY23. 2. Lower block hours rob of revenue, fixed lease cost on grounded planes crushes profits. 3. Goes from a 123cr profit in FY19 to a 1808cr loss in FY22. It is depressing and also a dangerous sign to see airlines fail and report enormous losses despite inadequate profitability goals and projections! Here are the major PSU lenders to Go Air as per the news reports: $BANKBARODA.NSE 1430 Cr, $CENTRALBK.NSE 1561 Cr $IDBI.NSE 59 Cr This will impact huge on Indian banking sector $NIFTYBANK.NSE along with above there are few private sector banks which has to beer losses.

— (@Swapnilkommawar) May 03, 2023]]>

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