Accelya Kale Solutions-Niche & Sticky Business

(sagararya) #201

Thanks guys…Just went through the thread…very insightful

I think the main concern in this story is the growth. I have no doubt that this is a strong business. However it caters to a structurally weak industry and hence I feel there is only a limit to which it can grow. I have been thinking if the business still has some runway. The growth of the business will depend on the following factors-

  1. Increase in Passenger traffic- Since their revenue is based on per transaction basis this becomes an important criteria. As per the forecasts, passenger traffic is expected to grow at the rate of 4.9% for the next 20 years. What do you guys make of this?

  2. Profitability of airline sector- The medium term outlook is good due to fuel costs. Also, I believe the software cost will be a minor portion for the customer compared to other expenses. Accelya Kale will lose the customer only if it goes completely out of the business. Since their softwares are based on financial solutions, Kela is focusing on the pain point of the industry. As per a Forrester Research report(that Kale paid for) the ROI for the airline will be 77% on a risk adjusted basis with payback period of just 8 months.

  3. New products- One of their main products is RIVERA which is considered one of the best in the industry. All other products , I believe will be cross sold to its customers. The company has been innovating and coming up with new products. Whether these products are good enough to be sold individually is yet to bee seen

  4. New customers - The top 15 players account for more than 50% of the revenues in the industry. . The top 20 players account for 80% of the passenger volume.

If I go through the list of customers on their website then out of the top 15, Accelya Kale has tapped into just two players - Air France and Cathay Pacific. The total market Kale caters to in terms of revenue is less than 20% of the industry. However, as per an ICICI report, Accelya Kale boasts of 17 of the top 20 companies as its clients. Can anyone verify on this? If its the latter then the scope of growth is lower right?

Would request fellow boarders to share their views on the above issues.

(Vivek Mashrani, CFA) #202

I think another growth area to think of is analytics. The company has already started providing analytics solutions to some airline customers and given they already have relationship/contract for RIVERA they can easily pitch analytics services to other airline customers or probably as combo package.

If they gain meaningful expertise in analytics, they could replicate the same solution to other industries as well. I mean RIVERA cannot be sold to other industries except airline but analytics could potentially be replicated. Just my thoughts, feel free to pour in your opinions.

Diclosure: Invested

(sagararya) #203

Possibly. Their core product will still be RIVERA. What would you make of a company with one core offering and paying out all of its earnings(even more) as dividends? Doesnt this mean that the growth opportunities are limited?


Can anybody tell why the stock is trading at 52 week lows

(Amey A Kulkarni) #205

Kale Consultants has been strong with Revenue Audit and Recovery Services.
This white paper by NIIT Tech
suggests that Revenue Accounting Solution of Accelya Kale is a complete solution and does not have as many customers as its Revenue Audit Services.

This seems to imply that there is significant scope for Accelya Kale to grow though Mercator, SITA, NIIT and now Amadeus (after acquiring Navitairre) are formidable competitors.

(hazariwalapu) #206

Dear All,

Good informations provided by u guys. i have a question relating to their employee cost. why it is on upward trend, as from Fy11- 52% it came down to almost 38% of the topline. Now again it has started upward journey, as per half year results it stands at 46% topline.


(Vikas Kasturi) #207

Hi Everyone,
My first post on VP.

I have read most of the comments here. Can someone please tell me:

  1. What is the company doing so differently from 2012 onwards because of which its revenue has jumped? Is it because of its partnership with IATA (i.e. primary vendor for SIS, BSP etc)? Are inter airline dealings complicated and likely to remain complicated? (A yes would mean deeper entrenchment for Accelya Kale)
  2. Have you noticed that the company has been consistently paying dividends >80% of its earnings? 75% of the company is owned by the parent. Isnt this a cause for concern? Why isnt the parent investing more of its earnings?

Would be grateful if you can throw some light on the above.

(Vivek Mashrani, CFA) #208



To answer your second question,

The business is high free cash flow generative in nature, due to the nature of business model. It gives patented revenue software at very nominal price and then charges clients on transaction basis. Thus, the primary operating cost of company is manpower and since this is in service industry there is no major capex requirement. This is clearly validated from high RoE and RoCE the business is generating.

Generally these companies have 70-80% manpower utilization, so unless there is extreme surge of clients they will still be able to generate huge free cash flows without additional investment in manpower.

Hence, instead of keeping cash on books company prefers to payout dividend since it does not forsee any capex requirement in future. I think this is very prudent step and by no means a cause of concern (you let shareholders decide what to do with money instead of keeping it as cash…right?? !!)

Discl: Invested

(Vikas Kasturi) #209

Hi Vivek,
Thanks for your responses. I was trying to delve a bit deeper. Such as:

What competitive advantages does AK have over other software vendors such as Amadeus, Saber?
How hard would it be for airlines to replace these vendors?


(Vivek Mashrani, CFA) #210


This report posted on the forum should be useful to start with:

(hazariwalapu) #211

How do u see growth going ahead ? i think they will have growth problem and can not see growth of around 15% . correct me if i am wrong.



(Vivek Mashrani, CFA) #212

The major tigger for Accelya will come from NDC (New distribution Capability) regime which has already kick started.

Other triggers for Accelya are potential opportunities in Revenue assurance and big way into analytics. Also, there has been strong emphasis by IATA to convert manual processes existing with airlines to XML based automated processes. Also, with evolving methods of payments (eg. payments banks etc), this will further add to revenue of players like Accelya in terms of overall design modification projects.

Plus, if you read feedback from various clients, Accelya is one of the most competitive player in the industry, hence there could be new clients which can be added to the existing client portfolio.

Disclosure: Invested

(Vivek Mashrani, CFA) #213

Major move in the direction of cross-selling and IATA’s empasis to convert into automated process. Accelya gets contract from Brussels airlines for manging cost.

(Vivek Mashrani, CFA) #214

Excellent result from Accelya with healthy bottom-line growth.

Announced final dividend of INR 30 making FY’16 dividend of INR 45.

Discl: Invested

(Vivek Mashrani, CFA) #215

On 15-Sep-2016, Accelya Kale launched Analytics and consulting services for Global Airlines. This is huge plus since the parent is having indepth domain expertise in analytics and consulting. Also, this will open up opportunities to offshore lot of work from its parent to its Indian subsidiary (Accelya Kale).

Below is the info from parent website on the segment:

They have IP driven approach to consulting as well. They have developed “Accelya Consulting Wheel” approach for consulting.

As such aviation analytics market size is big and expected to be USD 4.2 bn as per research, in comparison the market cap of accelya kale is just USD 0.3 bn which gives huge growth opportunity in future.

Given Accelya Kale has huge client base they can easily package and cross-sell analytics and consulting solutions to their clients.

I think only trigger which was missing for this company was growth and this could be taken care by this new area launch (P.S. share price has moved up by c.15% post this announcement on 15 Sep)

Discl: Invested

(bbbhutra) #216

Missed the bus. Just started tracking this stock, however I believe it is never too late to enter where there is virtual monopoly. Looking to increase exposure with every 10% dip. With the introduction of new value added services, the Company is expected to perform better going forward.

(kaustubhkale) #217

Owner of airline services firm Accelya taps banks to launch sale: sources

(bbbhutra) #218

Interesting. Is it an indication that the parent company no longer sees much growth in it and feels saturated ?

(kaustubhkale) #219

No, not necessarily. I personally believe probably the PEs work that way. Selling it after a point, not necessarily means growth stagnating.

Disc: Invested

(V) #220

Warburg is interested in Accelya.