An initial public offering by discount carrier Deccan Aviation has struggled to find takers, raising questions on the viability of the low-cost airline model in an increasingly crowded market.

The offering, which closes on May 23, comprises a fresh issue of 24.55 million shares, or a quarter of the post-issue capital. It will raise as much as 4.3 billion rupees if priced at the top of 150-175 rupees per share range.

The issue was scaled back from a planned $250-$300 million and delayed due to reported disagreements over the valuation.

In contrast, a $600 million IPO by Reliance Petroleum Ltd. drew huge demand last month. Leader Jet Airways raised $434 million in 2005, and the issue was oversubscribed despite a relatively high price band of 950-1,125 rupees.

The Deccan issue was hit further by record declines on the stock market, but analysts were also wary of its business model.

"The stock seems expensive given the inherent nature of low profitability and high capital intensity for the industry, especially during the current phase of rapid expansion," said Kalpesh Parekh, an analyst at ASK-RJ Securities.

Deccan, which launched its first flight in August 2003 with an ATR turboprop aircraft, has 30 planes flying to 55 destinations and just above 14 percent of the domestic market.

It posted a net loss of 195 million rupees in the year to March 2005 on revenue of 3.2 billion rupees. Analysts estimate the company will turn a profit in 2007/08.

( www.financialexpress.com)