Accelya Kale Solutions-Niche & Sticky Business


(vikas kukreja) #1

A small consultant company which provides financial solutions to airlines business and makes softwares/products to process their revenues. From the issue of air ticket all the way to entire financial cycle, this company provides solutions to airlines. They provide revenue accounting solutions, audit recovery solutions and also decision support solutions. They have 200 clients in their kitty and have a good track record of last 5 years.

CMP(52 week high/low)= 335 (400/100)

P/E= 8

Debt = 10 Crs

Dividend yield= 6.5%

Market Cap = 533 Crs

Average ROE of last 5 years = above 20%

Average OPM of last 5 years = around 25%

It was previously named Kale Consultants, but in 2010 accelya group (UK) acquired it from promotors at Rs 172/share and is now holding 75% of the company. Accelya group is into similar business of providing solutions to airline industry in US and Europe through BPOs and hence this acquisition. Their vision is to become a leaders in complete business efficient solutions for airlines industry.

They have done a buyback of 13Crs or 6% of their equity.

Positives:

1). Into a niche business segment and seems to be specialist in their segment while gaining steady market share globally.

2). With airline industry always struggling for more efficiency and low overheads, this company stands for a better future ahead.

3). Business model and products are sticky in nature and hence will make their customers dependent on them for long term-A moat.

Negatives:

1). Airline industry can also become a negative since, many companies may eventually vanish and hence accelya suffers from client loss or even worse their payments.

2). Into a very niche segment, and hence any major change in airline industry may affect this company for sure.

Will request other members on forum to look at this company and give their insights about this business as an investment.

Regards,

Vikas Kukreja

PS: Last year my friend told me about this company as a good investment option, but i turned it down by just hearing the name and thought it to be just any other IT company. The stock has increased 3-times since then.


(vikas kukreja) #2

Some more info about the company:

The company has good website and also their AR is very informative and detailed for a small company. Positively surprised to see such detailed AR.

Even after acquisition in 2010, CEO remained same (Vipul Jain). Major growth has come in last 3-4 years and seems to continue in future as new clients are added. Their account receivables at around 20 crs seems to be high and hence a point of concern. Also, they have many subsidiaries about which little information is shared in their AR. On positive side, since the business has annuity revenue stream, it has to spend less on sales and promotion. Also, most of profit is free cash flow and hence liberal dividends is a high probability as they did in 2012 (50% payout). All in all, the business seems to be growing at a nice pace and has moat around with predictable revenues in future.


(Vivek Gautam) #3

The company earlier called Kale Consultants

1)Seems to be moving into different orbit ever since Accelya a 30 year old group in Airlines business took it over.

2)Accelya formed from venerable ADP group with a stellar track record

3)Both their products complement each other

4)Its being one of the rare success story in product space from India

5)Cleared the 15 year thum rule comfortable n has an enviable list of clients

**6)Excellent div yield n expected forward EPS of 55-60 rs **

7) Zero debt

8)75% promoter stake

9)Ethical MNC management

10)Operating in niche segment with a good moat

11)Good annuity business

  1. Relatively undiscovered stock ala Lynch

(Vivek Gautam) #4

http://www.hdfcsec.com/research/ResearchDetails.aspx?report_id=2989356

Excellent report from venerable HDFC Securities on Accelya Kale


(vikas kukreja) #5

Hi vivek,

Thanks for sharing report. You have really summed up more or less all the characteristics of this business. A DCF might work in this kinda business with predictable revenues to understand valuation of the business.

Vikas


(Ayush Mittal) #6

Hi Vikas,

Yes, this looks to be a very interesting co. I also missed the bus despite having looked at the good nos at about 150 levels or so :frowning:

Interestingly the co has bagged several new clients over last few months.

On the concerns: The co hasn’t paid any interim dividend during this FY. So does this mean that the dividend would be lower this year? Similarly, there are indications that the co had booked some one time sales in these qtrs and hence the recent performance may not be repeatable.

Views Invited

Ayush


(vikas kukreja) #7

Hi Ayush,

Many thanks for sharing the info. Both the concerns raised are really important.

. Dividends should be liberal since company generates lots of FCF and i feel (Subjective) that management is good. Lets wait for any announcement of dividend for current year.

Even in FY 2011-12 they had one time income which boosted their bottomline. If this is the case for current year, we might wait till yearly results. The one time income is coming due to restructuring of their subsidiaries and making their business more lean and focused. It should be good for longterm, however the normal income estimates are slightly difficult to visualise in current scenario.

In my view, a small position can be created to track it closely in future and also based on managements past actions. If management steers company in right direction, stock can be added incrementally.

Disc: No holdings in accelya kale solutions.

Regards,

Vikas Kukreja


(vikas kukreja) #8

Hi Ayush,

After looking at their quarterly results i have a few queries. Due to my limited knowledge about subsidiary and merging, it would be great if you can share your thoughts and provide some wisdom.

1). As per their quarterly report, they have liquidated the subsidiary of Kale revenue assurance services (KRAS) which itself is a subsidiary of accelya kale on 6th Feb. So, does it have any affect on quarterly numbers, since accelya was previously owning this subsidiary indirectly but 100% and after effect is owning it directly. In my view its a structural change but without any effect on top-line or bottom-line. Please correct me if i am wrong.


(Ayush Mittal) #9

Hi Vikas,

Agree, it shouldn’t have any affect on performance.

Ayush

Disc: I hold some


(Vivek Gautam) #10

AS PREDICTED CO BOARD IS MEETING on 2nd may 2013 for results n interim dividend.

on an expected EPS of 50-52 n dividend of Rs 20 what shud be the price target?


(vikas kukreja) #11

Hi Vivek,

The company has come out with yet another great set of numbers. Also, the dividend declared is Rs 30, which is quite an amount and gives a yield of around 7.5% on current price. Expected EPS is correctly mentioned as around Rs 50 till June. As expected the stock is in upper circuit today. I am not able to purchase at this price, as i dont feel thr is any discount in the CMP, however it might be anchoring bias playing out in my mind. The price increase will be a factor of growth from here on and not valuation increase IMHO.

Regards,

Vikas Kukreja


(Akbar Khan) #12

They have mentioned that a Major client would be discontinuing during the current year. The impact might be visible only next year. To what extent remains to be seen.


(Ayush Mittal) #13

Excellent results and dividend :slight_smile:

They do write some concerning point in every qtr result, but yes, we should investigate if a major client is exiting or “transiting” from one of their model to other?

Ayush


(Vivek Gautam) #14

Vikas so took some position or not Accelya ? Today it was on circuit n it seems will neon circuit for next few days until it becomes ex dividend.

Real wealth is quickly created in these hidden gems which are superb growth stories in top line ,bottom line, free cash flows resulting in great dividend, good size of opportunity , MNC co with 75% promoter stake.

But it doesn’t catch the fancy of valuepickrs unless seconded by the Gurus ala Ajanta,Kaveri, Mayur, Atul etc.

Still does it has the potential to reach 4 figures?

Any aviation expert who can give some ides on size of opportunity n competition in the sector for Accelya ???


(Vivek Gautam) #15

The company after giving hefty dividend of 30 Rs per share is again on UC for last 2 days.

IMHO the co is still undervalued with Current year EPS of 60 rs it’s avalble at a single digit PE, ROCE of 54% n big size of opportunity with. It’s unique sticky selling model.the co can become a steady compounding machine.

But price anchoring is at play here it seems keeping investors away.


(RsKm) #16

Vivek, I think its profits are lumpy and will not necessarily recur q to q or y o y. Hence p/e valuation has to be looked at from that angle.


(Vivek Gautam) #17

How has been the quarterly performance ever since the Accelya took it over ?


(dr mehul shah) #18

last four quarters performance

KALECONSUL.docx (14.4 KB)


(Vivek Gautam) #19

Are the consolidated figures for Accelya different than standalone ones? I think last qtr EPS for Accelya was around 16-17 rs EPS.


(dr mehul shah) #20

CONSOLIDATED RESULTS

Consolidated-qoq-results-ACCELYA.docx (18.9 KB)