Accelya Kale Solutions-Niche & Sticky Business

(Mahesh Shah) #181

Vidur…no new update on the company except that sluggish growth continues in topline in cc terms with subdued margins…AR14 of the group is released recently which states the reason of raising of ~1200 cr. debt as a releveraging exercise…with such high external debt at group level without any meaningful addition to assets, safety is considerably reduced and unless the company restarts its aggressive growth journey I can’t find any triggers in it…


Discl. - Not Invested

(Vidur Chhabra) #182

Thanks for your thoughts Mahesh

(Sunil) #183

Hi Mahesh,

On which page of AR you found raising of 1200Cr debt?

This is a heavy cash generating machine. Free cash flow generated last 2 years is > 90 Cr which is more than 30% of sales. Company has been generous enough also in distributing dividends.

With 5% dividend yield at 16PE it appears fairly valued and can be considered safe enough bet.

(Mahesh Shah) #184

Hi Sunil,

I am referring to Accelya group AR (of which Accelya Kale is justa subsidiary) and not AccelyaKale AR…Group so farseems to havethe policy to keep entire cash generated from all subsidiaries into holding co. as also raise any debt for funding needs of any subsidiary at the holding level itself…this is the reason why we find almost 100 % of cash being distributed as dividend because of which all minority shareholders are benefiting…however, financials of parent needs to be strong for continuation of such structure as well as the policy…with raising of so much external debt without much value addition, I find safety considerably reduced as afterall AccelyaKale has to follow the mandate of its parent being 75 % shareholder…this is just my belief and I can be wrong.


(Arun) #185

Accelya Kale - Buy.pdf (666.7 KB)

(Yash Jhaveri) #186

With the addition of Vueling and Air Namibia (and 5 airlines mentioned in FY14 AR) - won’t growth pick up in the next 2 years? I think there’s a high chance of healthy (10%+) sales growth for the next 2-3 years

At current price of ~1000 / share - the market is putting almost no value on growth.

I think the stock is a buy currently.


Disclosure - Invested in the stock at 1000 per share

(mukul aggarwal) #187

@Mahesh @varadharajanr @mikaarun

Hi Guys,

I am doing a deep dive into the company after I read the comment that Prof Bakshi’s fund is invested in the company.This is a business very much similar to MPS (great ROCE, high div. yield, ethical management, turnaround after change in ownership, long lasting customer relationships leading to stickiness i.e. the moat, complete end to end product solutions, global outsourcing opportunity, long past experience of 25 years resulting in expertise in niche area). One thing that is better in this case is that end market growth is expected to be 6-7% vs. 2% for publishing industry, and with more outsourcing, cross selling etc. the co. is expected to grow higher than the end market. Now the only issue is the slowdown in growth in FY15 because of loss of one big customer (which in my view is the biggest risk for the co. as I read somewhere that top 10 customers account for 60-70% of the revenues). I have few questions for the people who have a deeper understanding of the business:

  1. Near term growth prospects (2-3 years): What are your views on the near term growth prospects i.e. in what range the co. can grow (is it 10% or 10-15% or 15%+) and what will be the growth drivers. Has the management indicated any growth outlook in the AGM or any interview?

  2. Long term growth prospects (3+ years): What is the long term growth outlook for the co. and the industry as a whole?

  3. Margins: This is clearly an OPEX story where once the growth resumes the margins will expand but are there any chances/drivers for margin to contract if the growth doesn’t happen, resulting in profits degrowth?

  4. Risk of big customer loss: I think this is the biggest risk. It can happen that a big customer decides to bring the system in-house and hence not renew the contract with AKS w/o any of their fault. Last year they lost a big customer. Were there instances in the past also where they lost any of the big customers or last year was a rare one-off?

  5. Industry Consolidation: As mentioned in the thread above, there are around 11 players (big ones, some in-house) in the industry so are there any chances of consolidation? Has the co. shown interest in growing inorganically (like MPS)? Or any of the competitors has shown interest in consolidation?

I would request all seniors to take sometime out and reply to the above queries.


(Varadharajan Ragunathan) #188

I have been on this for a while as as per my understanding it’s only once in 2-3 years that you get a rare combination of low crude prices, lots of new airlines forming and international traffic increasing rapidly. The last such instance was in 2004-05 when you had the indigos and now infamous king fishers getting in.

My sense is that a lot of LCC’s are going to come in in asia and africa. I can’t still figure out if that’s the case. any one in aviation industry would be of great help in understanding this.

As for margins, customer loss, I see that to be minimal - the big customer loss happened because of a merger of that customer with someone else and not out of his own volition. As for inorganic, won’t happen as accelya kale itself is on the block for a while now.

I would also appreciate if you can speak to management, aviation experts and chip iwith your views. That can enrichen this discussion.

(PP) #189

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(Varadharajan Ragunathan) #190


read the demand forecast by boeing - its sort of intuitive, when average per capita starts crossing $ 1000 or so, demand for air travel zooms as people start valuing their time a lot. Look at India itself and the explosion in traffic in the last decade Africa and parts of latin america are going through that right now.

Also, read the MD & A in Accelya’s AR 15. There is a reference to it.

(PP) #191

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(Varadharajan Ragunathan) #192


Thanks - your comments help sharpen the thesis. Although the growth looks not too different, the fact is a lot of growth is now led by new airlines in asia, middle east and africa.

I do a job that allowed to meet a couple of regional airlines and all of them said the same thing - there has never been a better time to start an airline because of low crude prices and huge demand in india/china and africa.

In your link, if you read carefully, air traffic in india was up 28.1 %, middle east was up 18.5 % and lat am at 8.5 %. Africa had a decline because of the dependency on oil revenues - but my thesis is as these economies mature and solve the dutch disease, they will become more robust and weather the oil storm.

Already, nigeria is spoken of as a promising economy by godrej which has acquired brands there.

My sense is that the next couple of years, save for a financial storm should see a brisk uptick in launch of new airlines - how many survive is anyone’s guess.

It’s not the passenger growth that’s important, but how much of that is coming from newly formed airlines that’s relevant to accelya. As always, I could be wrong here.

(PP) #193

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(Varadharajan Ragunathan) #194

they make Rs. 50-100 per ticket sold - irrespective of the cost. its not a function of ticket value but number of transactions.


Infact, I can use the same data points to argue that this is the best time to buy - broad trends in nigeria are up - oil is not going to remain at this forever - in a 2-3 year time frame it will get back to normal (reversion to mean). As for china, as economies mature, their tendency to do foreign/domestic flying holidays (“wealth effect”) remains quite robust and that compensates to some extent on the trade issues. Case in point, the stereotyped japanese tourist couple who you see everywhere - who are wealthy even though Japan as an economy is hardly growing.

Just my thoughts -

(PP) #195

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(Varadharajan Ragunathan) #196


Yes - I could be suffering from endowment and availability bias.

(PP) #197

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(Varadharajan Ragunathan) #198


The management is highly ethical. My whole bet is that whenever there is a CEO change things do get shaken up a little and the new CEO wants to prove his/her mettle, especially if working under the guidance of the founder. In this case, theres a change that’s happened and for what’s worth, tail winds do exist and the only variable you need to track in this business is growth - since it’s a sticky, high margin, high EBITDA, recurring cash flows business.

I prefer to take those kind of bets - where there’s very little to lose and all to gain, even if wait takes a little longer. I had the same thesis on infy when vishal sikka took over and so far it’s been proven right.

(PP) #199

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(jaitoshniwal1) #200


Anyone attended the AGM concluded on September 30?

Please do share any notes on the same.