Kingfisher Crisis in Hindsight
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KINGFISHER CRISIS IN HINDSIGHT
SUBMITTED BY
ABHISHEK SUNDARAM
# 45
UNDER THE GUIDANCE OF
PROF. MANOHAR LAL
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I would like to take this opportunity to thank Prof. Manohar Lal, who has guided
me through this project. I would also like to thank all my friends who have had
valuable suggestions and inputs and were kind enough to read through the drafts of
this paper.
Abhishek Sundaram
16th
April 2012
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Table of Contents
INTRODUCTION: ....................................................................................................................................... 4
METHODOLOGY: ...................................................................................................................................... 5
DATA COLLECTION: ................................................................................................................................ 6
DATA ANALYSIS:................................................................................................ ...................................... 7
1.1. Expenditure as a % of Sales (Kingfisher) ..................................................................................... 8
1.2. Expenditure as a % of Sales (All Airlines) ................................................................................... 9
1.3. Profits as a % of Sales (Kingfisher) ............................................................................................ 10
1.4. Net Reported Profits as a % of Sales (All Airlines)....................................................................11
1.5. Ratios .......................................................................................................................................... 12
CONCLUSION:.......................................................................................................................................... 13
BIBLIOGRAPHY:...................................................................................................................................... 14
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INTRODUCTION:
The Kingfisher Airlines crisis has taken all stakeholders of the company by
surprise, or has it? Wasnt the aviation sectors woes already known?
The aviation industry as a whole has been on the brink of collapse for long now,
what with the extremely high taxes, the formidable operational costs and the cut
throat competition heralded by the introduction of low-cost flights, it was but
inevitable that many would find it unprofitable and extremely difficult to run the
business.
The purpose of this research paper is to identify the indications of a failure and
flawed nature of Kingfishers business model by analyzing Kingfishers annual
statements from 2007-2011. I will be attempting to interpret and analyze ratios that
are important for the aviation sector that could provide investors and readers of this
report with a basis to compare and analyze other participants in the aviation sector
and draw meaningful conclusions from them.
The research paper has been restricted to only financial statement analysis of
Kingfisher Airlines and doesnt include qualitative aspects of its crisis. The paper
doesnt deal with operational inefficiencies that could be a major contributor to the
issues faced by Kingfisher Airlines.
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METHODOLOGY:
The first method that will be employed in the analysis of the financial statements is
comparative analysis followed by an in-depth analysis of various operational
efficiency ratios, profitability ratios and other financial ratios.
The ratios will be compared against the financial statements of Jet Airways and
other companies such as All cargo, Container Corp., Spice Jet, that operate in the
cargo transportation business where Kingfisher is the fourth largest company by
market share.
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DATA COLLECTION:
Financial reports of Kingfisher and Airlines that have been compared with
Kingfisher, have been sourced from the following websites for the period 2007-
2011.
1. flykingfisher.com
2. moneycontrol.com
3. money.rediff.com
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DATA ANALYSIS:
The data given below, lists out the competition for Kingfisher in the airline cargo
transportation business.
Competition
Name Market Cap. % Sales % Net Profit % sales
Container Corp 11,788.79 58.88% 3,826.58 14.14% 830.1 21.69%
Jet Airways 3,090.76 15.44% 12,776.83 47.20% 9.69 0.08%
Allcargo 1,694.50 8.46% 826.33 3.05% 151.29 18.31%
Kingfisher Air 1,146.63 5.73% 6,359.64 23.49% -1,027.40 -16.16%
Arshiya Intl 919.5 4.59% 452.6 1.67% 25.22 5.57%
Aegis Logistics 535.57 2.67% 259.81 0.96% 31.21 12.01%
Transport Corp 446.11 2.23% 1,759.18 6.50% 51.32 2.92%Aqua Logistics 361.49 1.81% 381 1.41% 22.42 5.88%
Patel Integrate 38.57 0.19% 426.76 1.58% 3.47 0.81%
As seen Kingfisher is the fourth largest firm in terms of market capitalization. It
has the second largest sales and is the only airline that is making a loss, but the
other airlines too are also only marginally making profits with the exception of
Container Corp., AllCargo and Aegis Logistics, but these companies are operatingonly in the air cargo transportation business and hence we could assume that the
profits of Kingfisher are probably being eaten only due to inefficiencies in
passenger airlines business. A glance at the figures of Jet Airways too adds
credence to this assumption.
http://www.moneycontrol.com/india/stockpricequote/transport/containercorporationindia/CCIhttp://www.moneycontrol.com/india/stockpricequote/transport/jetairways/JA01http://www.moneycontrol.com/india/stockpricequote/transport/allcargologistics/AGL02http://www.moneycontrol.com/india/stockpricequote/transport/kingfisherairlines/KA02http://www.moneycontrol.com/india/stockpricequote/transport/arshiyainternational/AI60http://www.moneycontrol.com/india/stockpricequote/transport/aegislogistics/AL9http://www.moneycontrol.com/india/stockpricequote/transport/transportcorporationindia/TCI04http://www.moneycontrol.com/india/stockpricequote/transport/aqualogistics/AL14http://www.moneycontrol.com/india/stockpricequote/transport/patelintegratedlogistics/PIL05http://www.moneycontrol.com/india/stockpricequote/transport/patelintegratedlogistics/PIL05http://www.moneycontrol.com/india/stockpricequote/transport/aqualogistics/AL14http://www.moneycontrol.com/india/stockpricequote/transport/transportcorporationindia/TCI04http://www.moneycontrol.com/india/stockpricequote/transport/aegislogistics/AL9http://www.moneycontrol.com/india/stockpricequote/transport/arshiyainternational/AI60http://www.moneycontrol.com/india/stockpricequote/transport/kingfisherairlines/KA02http://www.moneycontrol.com/india/stockpricequote/transport/allcargologistics/AGL02http://www.moneycontrol.com/india/stockpricequote/transport/jetairways/JA01http://www.moneycontrol.com/india/stockpricequote/transport/containercorporationindia/CCI -
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1.1. Expenditure as a % of Sales (Kingfisher)
As seen from the chart above all expenses have dropped over the years in a
uniform manner. Power and Fuel costs that are the expenses that form a major
chunk of total expenses as a % of sales have fallen at the rate of 48.35% (using
geometric mean) in the period of 2007-2011 while employee costs have fallen
14.18% in the same period. None of these indicate that the company lacks
operational efficiency on the contrary it shows that the company is much better in
handling its costs efficiently in fact it is much better off now than it was in 2007 in
terms of operational efficiency.
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
Jun '07 Mar '08 Mar '09 Mar '10 Mar '11
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing
Expenses
Selling and Admin
Expenses
Miscellaneous Expenses
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1.2. Expenditure as a % of Sales (All Airlines)
The above chart shows the total expenses incurred by Kingfisher and its
competitors which clearly depicts that Kingfisher incurs more costs than its
competitors. This chart shows us that companies that operate in the air cargo and
passenger transportation business have higher costs (Jet Airways and Spice Jet) it
is but obvious that the higher costs are due to the multiple segments that theseairlines function in. Hence it can be concluded that though Kingfisher has
improved its efficiency but it still lags behind in comparison to its peers.
68.00%
70.00%
72.00%
74.00%
76.00%
78.00%
80.00%
82.00%
84.00%
86.00%
SpiceJet Allcargo JetAirways
ContainerCorp
KingfisherAir
Total Expenses
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1.3. Profits as a % of Sales (Kingfisher)
The above chart shows various levels of profits that the company has made. Over
the years the operating profits and the profit before depreciation, interest and taxes
(PBDIT) have grown, a growth consistent with our earlier analysis of expenses
which showed that there is operational efficiency.
The PBT and PAT (Reported Profits) however still is not positive probably owing
to the higher depreciation and taxes incurred by the company.
-60.00%
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
Jun '07 Mar '08 Mar '09 Mar '10 Mar '11
Operating Profit
PBDIT
PBDT
Profit Before Tax
PBT (Post Extra-ord Items)
Reported Net Profit
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1.4. Net Reported Profits as a % of Sales (All Airlines)
In comparison to its peers however Kingfisher seems to be bleeding. Its net
reported profits are extremely low i.e. they are making huge amount of losses. A
look at Spice Jet and Jet Airways, the airlines that Kingfisher can be compared
against shows that Kingfisher is doing extremely badly in comparison to them,
though the other airlines are not too well off themselves with Spice Jet close toonly 5% profits and Jet Airways just about breaking even.
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Reported Net Profit
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1.5. Ratios
Ratios 2011 2010 2009 2008 2007
Reported EPS (Rs) -20.64 -61.95 -60.5 -13.85 -30.97
Return On Capital Employed (%) 21.72 4.35 -3.68 -27.63 -21.23Return On Net Worth (%) 28.27 39.7 71.98 -109.29 -109.07
Current Ratio 1.22 0.78 0.64 0.97 0.8
Quick Ratio 0.62 0.58 0.52 0.88 2.2
Interest Cover 0.8 0.17 -0.19 -6.22 -8.1
Owners fund as % of total source -85.48 -99.65 -63.14 16.8 29.56
Book Value -70.46 -150.54 -83.88 13.9 28.4
The reported EPS over the years has drastically varied. The EPS has fallen and has
picked up again, but it still remains in losses.
The Return on Capital Employed has improved showing consistency with
increased operational efficiency.
Current Ratio figures too have improved showing that the company has the ability
to meet short term liabilities.
The Quick ratio however paints a different picture; it shows that the company
possesses only few liquid instruments to settle its current liabilities.
The interest Cover ratio is quite low at 0.8 and could raise a problem when the
company would want to raise capital through debt.
There has been an erosion of shareholder value over the years though it has
marginally improved over the last year it still remains to be seen as to how this
company will move.
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CONCLUSION:
The study was inconclusive since it is not quite evident that the company has been
facing problems due to its operations since it has managed to improve its
operational efficiency quite a lot. A more in depth and comprehensive analysis of
the financial statements need to be made to understand the causes for Kingfishers
predicament.
This paper has been a sincere attempt to identify indications that could have helped
investors foresee the impending crisis that Kingfisher would face through the
analysis of its financial statements; however this is only one aspect and people
interested in further research could also probe into the qualitative aspects of
running a business in the aviation industry and the policy environment that the
airline industry functions in.
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BIBLIOGRAPHY:
1. google.com
2. wikipedia.com
3. moneycontrol.com
4. money.rediff.com
5. pagalguy.com
6. timesofindia.com (Archives)