Accelya Kale Solutions-Niche & Sticky Business

(Vivek Mashrani, CFA) #285

Also, this is a high dividend yield stock. So, as interest rates go up, the discounting rate of cash flows goes up and hence the price should go down (considering everything else remaining same). The attractiveness vs. any bond/FD goes down as interest rates rises.

(Janme) #287

On page 163 of the 2017-18 annual report, continent wise geographical revenue is specified. The revenue from Asia-pacific and USA is increased while from Middle east and Africa and Europe is decreased.

I am not able to find the reason behind the decrease in revenue from Middle east and Africa and Europe. Does any VP members know the actual reason?

(amit) #288

Europe decrease is because of air Berlin bankruptcy.

(Market Student) #289

Dear all,

It would be great if any investor from Pune could attend the AGM on October 10.

The owners with 74.66% stake definitely doesn’t seem to care the 25% fall in market price from their acquisition price: ). Of course, it makes sense for them because they entered this cash cow a couple of years ago itself and might be focusing on larger canvas i.e maybe chalking out plans to penetrate into airlines still using outdated in-house revenue accounting or planning strategy to defend their turf from Amadeus and alike.

But individual investors like us, no matter how rational we try to behave, end of the day would like to know whats the Boardroom strategy being panned out ; )

Anyways coming out of my wild imagination (of being an owner) to a minority investor I found the results to be quite good, considering the new owners are integrating Mercator. But the missing link is lack of communication in AR or to investors.

EPS dropped by 8.3% YoY which might be one of the reasons for selling pressure on thin volumes(free float of just 25%) . On a contrary free cash flow jumped by 10% despite capex doubling from 10 cr to 20 cr! This values the company at a decent cash flow yield of ~6% out of which we will get around 5% in dividends when more than 95% of the small caps don’t have a free cash flow visibility but trade at rich valuations.

Top-line growth is a concern for me. How come after doubling revenue in 4 years time (2009-2013) from 144 cr to 303 cr, the revenue growth seems to have stagnated with 5% CAGR from then. This is one good quality stock wherein getting the management inner thinking can help unravel a great investment, in my opinion.

Disclosure - started investing on declines since beginning of small & mid-cap carnage in 2018

(Kanwal Sudan) #290

Hi if anybody attended the AGM yesterday, kindly share your notes here. I’m most keen to know if synergy between Accelya and Mercator will lead to increasing business for REVERA.

(Umang Shah) #291

Accelya Kale AGM Note

Date – 10/10/2018

Place: Pune

Following are some of the notes from Accelya Kale AGM –

  1. Essentially, both RAPID and REVERA at the newly introduced version 20 are one and the same. They have not changed the names of the software since changing the same might initiate the RFPs from the customer and give competitors entry.
  2. RA (Revenue Accounting) was the only overlap between Mercator and Accelya, while the managed services of both the companies are different from each other and complementary. Also, while Accelya has a miniscule presence in Cargo revenue Accounting, Mercator has a large part of its revenues coming from Cargo RA since they also have cargo handling operation (Emirates, United Airlines are some marquee clients). These revenues will not come to Accelya Kale.
  3. For now, the only revenues accruing to Accelya Kale from Mercator would be the customers moving from Rapid to Revera on the contract expiry. Accelya Group (including Mercator) today has a total of 95 airlines using the RA products. MD commented that no significant revenues are expected from Mercator at least for the next 2 years.
  4. They consider Sirax (from Lufthansa Airlines) as one of their closest competitors at high end, and Amadeus and Areva at lower price points for Revera.
  5. They have 2 airlines on Revera in North America, and the company is hopeful of winning one more in a near future. In US, there are 3 major airlines, all of which use internal systems. Similarly, they are close to signing one customer from China (market almost fully dominated by TravelSky), but no financial details divulged.
  6. Amadeus was able to take away Malaysian Airlines from RAPID by giving a 30% discount to RAPIDs prices, though it has offered an inferior functionality than Accelya. With Malaysian Airlines under financial difficulties, they went with Amadeus, since Accelya was not ready to reduce prices.
  7. As per the management, 2 advantages of Accelya are a. superior functionality and b. ability to cross sell its managed services to the Revera and Rapid customers. Company further went on to say that 65% of incremental revenue growth is expected from cross sell of services while 35% of the growth is expected to come from new clients.
  8. IATA (Airline Trade Association) performs 2 key services – BSP - settlement of transactions between and airlines and travel intermediaries and SIS – settlement of transactions between fellow airlines. Accelya Kale provides 100% services of SIS for IATA. This contract has now been extended till 2027. Although the total revenues were not provided, mgmt. mentioned that it’s a sizable portion and co. gave discounts to extend the contract.
  9. A large chunk of software development and implementation work of Accelya Group is done within Accelya Kale and it continues to remain an engine of Accelya Group’s growth.
  10. Amadeus acquisition of Navitaire was a positive for Accelya as it was able to take clients from Navitaire as Amadeus was busy absorbing it.
  11. Although one person said drop in employee count was on account of efficiency, another later commented to a select group that some employees from BPO dept. were let go post Air Berlin bankruptcy.
  12. A long discussion on NDC – conclusion was – implemented in next 3-5 years, will enable Static pricing of tickets to dynamic pricing of tickets, bundled offers can now be accounted for and revenue accounting will become much more complex, contrary to belief of RA dying.
  13. A lot of shareholders had a query with respect to the disconnect between the revenues and the number of transactions. Management commented that revenue per transaction is not a right metric and is not expected to be consistent since some airlines go for fixed fees, some go for variable, while some also go mixed and the ratio changes from airline to airline. Effectively I did not find a single quantitative measure for the company’s revenues.
  14. 95% of total revenues are recurring revenues.
  15. Customer Concentration - top 3 – 30%, top 10 – 61% Cargo RA is only 4% of company’s revenues.
  16. Revenue growth would most likely be in single digits over next 2 years, considering Mercator integration will still take time.

(salil) #292

Thank you for the AGM details

Any idea how is the revenue trajectory will change post Mercator implementation. Did they give more details about post implementation. Such as the improvement in profit margin etc .
Trying to figure out whether the whole dynamics changes post implementation

(Umang Shah) #293

did not get any insights with respect to change in margins and post implementation revenues. i think whatever an accelya kale shareholder gets from mercator is essentially free since all the acquisition outflow has been from Accelya Group. So would it not make sense to value the existing business and take a call, keeping Mercator inflows as additional unknown upside?