Accelya Kale Solutions-Niche & Sticky Business


(RsKm) #81

Recd last week


(RsKm) #82

Accelya Kale sold off from high of 712 to 560 post a mildly lower quarterly profit in jul-sep2013 quarter. Rs.17cr PAT in sep13 qtr vs Rs.19cr in jun13qtr and 20cr in sep12cr.

The mild degrowth in reported numbers is due to hedging loss of 9cr in sep13cr vs 2cr hedging gain in sep12qtr. Adjusted for this, PAT increased 42% to 25.4cr from 17.9cr in sep12. Adjusted PAT for jun13 qtr was 26.1cr. On adjusted basis, a flat performance but huge growth year over year.

The guidance is positive. Company release says ‚ÄúFor the first time in aviation history, global passenger numberswill cross the 3 billion mark in 2013. This positive outlook of the aviation industry andgrowth in transaction volumes will add to our business‚ÄĚ

RoE 78.5%, company paid huge dividend of Rs.70 last year (on EPS of 56.50). P/E 11x

MNC company (75% held by Accelya worldwide, spain)

There have been news of the company being an acquisition target at substantially high valuation. The ultimate owner is a Private equity fund.


(Mahesh Shah) #83

stock cracks today…seems somebody is willing to sell decent qty…

Rgds.

Discl.-- Hold & Accumulated more today.


(MANISH OKHADE) #84

Can somebody answer following:

  1. Is business performance closely linked to financial health of the airline companies? Or it is immune i.e. though JET/SPICE may bleed due to ATF etc but AKS will not as long as passanger traffic is there? In later case, will aireline companies force for price reduction to AKS [its only possible if any other similar soultion sprovide exists]?

  2. What is the future of the company, how it will grow its revenue?

a) By introducing new products?

b) By YoY price hike/transactions?

c) Or it depends on how avaiatin sectro grows?

d) any other factor i am missin


(DAVULURI OMPRAKASH) #85

Hi Manish ,

Accelya provides software solutions to airlines in financial management space with products like Revera PRA ( passenger revenue accounting ) , Revera CRA ( cargo revenue accounting ) and some other products like Finesse MBS and others .Accelya’s products are industry leading solutions and competing with companies like Mercator ( Rapid ) , Amadeus PRA , Sabre , WNS , TCS .As per IATA till now only 35-40 percent of airlines adopted to these products and remaining airlines are using either in house inefficient softwares or manual entries.IATA estimated that most of airlines will convert to these leading products in coming three years . So there is huge scope for efficient product’s .

At the time of screening sofware solutions , airlines prefers neutral providers like Accelya . For example Mercator promoted by Middle east airlines , Amadeus backed by Air France . So data security has prime importance here apart from product strength and that is the reason behind good number of client addition for Accelya in last few years . Average tenure is around 5 years which some times is 10 years too .

Etihad airlines previously used Mercator Rapid and in 2012 they converted to Accelya Revera citing efficient product and data safety and adopted this product to all subsidiaries . Just one month back Hawaiian airlines shifted to revera from TCS product ( Only customer TCS have ) .It’s really difficult to get even single client and Accelya dded on average 5-6 clients from last five years .This year accelya lost one client and they did’t revealed that customer’s name Amadeus launched new product in 2012 and won two clients .

ON GROWTH :

Previously Accelya sold products on license basis and from this year they stopped that and they have two streams of revenues now 1. Hosted basis 2. per transaction basis . So revenue will grow based on new client addition and transaction volume .I dont think airlines will squeeze Accelya as their product is leading solution and enhancing their efficiency .So client addition is key to monitor .

Holding from last year .


(Mahesh Shah) #86

Hi Manish,

(1) Partly yes…Accelya’s future is linked to financial health of airline cos., mostly international airline cos., but, its this stress and thin margins at which airline cos.operates which in a way provides an opportunity to companies like Accelya…for ex., even at the end of 2012, Revenue Acounting, one of the most critical functions for an airline co., is still done inhouse by ~23 % of the global airline cos. (this figure was at 42 % + before 5 years)…Similarly, if we continue with this example, only 11 companies (including Accelya) share 98 % of the global outsourced airline revenue accounting opportunity…

Accelya will be more affected when there is downturn in passenger traffic…but, possibility of winning new clients because of significant outsourcing opportunity provides a safety considering the scale of operation of Accelya (group and not only kale).

Competition will be there, but, rather than pricing pressures, here the competetion is more pronouned inkeeping clients as more and more players are now offering a full services portfolio…for ex., amadeus, primarily a GDS, is concentrating more on its IT solutions unit as by virtue of that it can hook its large clientle and cross sell its ITS offerings…a case in point is its recent launch of revenue accounting product, for which it signed British Airways and Saudi Arabian Airlines as its launch customers…

(2) Rgdg. future of Accelya, out of your given choices, new product launches is correct, but in addition, it will have to win new clients and cross sell its offering amongst parent Accelya customers…price hike can’t be taken as a strategy for growth in current competitive environment…as I said before, there is good opportunity to let airline cos. outsorce their inhouse functions…to cite a recent ex., in 2012, Thai Airways switched from its inhouse solutionto REVERA from Accelya…such hosted/MPS model benefits airlines a lot and helps them improve margins…as at FY12, Annuity based (hosted/MPS) contracts accounted for ~90 % of Accelya Kale’s revenues…

AccelyaKale’s competence is its stength because of which it is involved in complex technological advancements with IATA which will let it win good clients in future…recent involvement of Accelya inSIS (live from 2012) andSIRS (to go live from April’2014) vindicate this…

Parent is strong, strategy is right, offerings are great, FCF generation could also be strong as CAPEX is minimal…even at group level, majority of the external debt is paid in 2013, and only debt in the form of CPECs maturing in 2036-2039 is remaining…so, in case of a fund requirement, support will be immediate…major growth drivers are going to be now Asia Pacific and Middle east for the group for which Accelya Kale is the only vehicle so far…

Rgds.


(Ravjit Singh Bagga) #87

One big order of abt 5/6000 shares was pending since last couple of days and got executed today…

Dont think its a panic sale just someone offloaded… 550/560 seems to be very strong support…

Regarding another question of hike in price---- I think it is at a very sweet spot and they seem to be consolidating with new client tieups in recent years…

It can be like a Sears candy later one where a minimal price hike in services wont affect the customer but it will boost the profitability for Accelya…

Also there is always a side car benefit of company being sold at a high market cap then its current price…

Simple business logic says that growing company with fantabulous ratios and predictability of stable earnings growth with negligible investments is trading at abt 10 PE…


(Mahesh Shah) #88

Hi ravjit,

A P/e valuation should not be proper for this co. as 10 pe that you see is TTM, forward should be more as in all probability, in fy14, accelyakale will post negative growth at least in profitability…

Second, on market talk of it being sold, IB sources indicate it was actually parent Accelya that was being put on block and not Indian counterpart…also, if there is a sell, it will only be of parent and not Accelyakale…

Rgds.

Discl.- Hold & Accumulating


(MANISH OKHADE) #89

Thanks all for educating me on AKS.

One 2 cent comment:

PE is a function of few main factors - Mgmt Persona [NRN,Aditya Puri etc], Business visibility which is ‚Äúeasy‚ÄĚ to see/feel/smell [e.g. PAGE is more predictable business], scalability to name a few. So its difficult for such companies to get a very high PE in bear market irrespective of financials. Jubilant, HDFC Bank, PAGEetc are again a good example, majority of investrs can see this business themselves, one can easily feel the brand strength etc.

So i feel as long as AKS profits grows, price will follow with average historical PE.


(DAVULURI OMPRAKASH) #90

Hi Mahesh ,

I tried a lot to collect parent balance sheet figures and as on 2010 they have 400 crores of debt as per draft posted at the time of acquisition .Do u have that data and could u pl confirm the source of debt repayment in 2013 . How can Checkers sell Accelya with out its subsidiary ? If Checkers capital sell Accelya what will be the future of Accelya kale solutions ? I think they have come to stage that both are integrated well , both are cross selling their products . So Checkers will sell both if and when it happens .Your view’s ?

** minimal…even remaining…so, ** immediate…

Rgds.


(Mahesh Shah) #91

Manish…as i said before, P/E is not the right multiple to value an IP business like Accelya…if a new company had to build such business upto current level it will take multiple years andlots of cash will need to be burnt…the right way to look at this co. is cash generation…

In simple words and in short I will explain you the moat…Kale built competence and IPs over many years but was not able to scale the business which could start generating the amount of cash that such product-led businesses have potential to generate…with Accelya’s combination, this scale was available that is what you see in the results…such businesses operate at 45-55 % margins and thats why they are great cash spinner…

What we need to monitor closely is client addition/loss, EBITDA Margins, Competitive scenario, Industry developments…For the co. to get rich valuations, it has to consistently generate good amount of cash for another two years…

A word of caution, IP businesses could also throw lumpy financials and one needs to be prepared for that…current FY14 is a real test for this co. as if in constant currency terms it can go away with flat sales with similar (FY13) margins then FY15 could again offer great business opportunity…

Rgds.


(Mahesh Shah) #92

Hi Omprakash,

to take your second query first…you first need to understand the holding structure of Accelya group…

Accelya Holding World SL is the company which directly controls all of the group’s operations via 11 subsidiaries…except AccelyaKale, in all the subsidiaries it controls 100 % ownership, either directly or indirectly (i.e. minority held in 4 subsidiaries in step-down manner so ineffect 100 % ownership)…in AccelyaKale it has a74.66 % ownership…

Now, comes the second company into picture, viz., Accelya Holding (Luxembourg) SA which has 100 % ownership of Accelya Holding World SL and therefore indirect holding over entire group…Hence, this is the ultimate holding company of the group…This co., i.e. Accelya Holding (Luxembourg) SA, as at FY12, has Chequers Capital XV as the major shareholder holding 94.47 % equity while other shareholders (mostly senior management personnel of subsidiaries including Mr. Vipul Jain of AccelyaKale) hold 5.53 % equity of the company.

Hence, whenever sell off happens, it will be that of ultimate holding company, Accelya Holding (Luxembourg) SA and not any other company‚Ķpieces can‚Äôt be sold and therefore the market talk of AccelyaKale being sold are totally incorrect‚ĶTo cut short, it will be entire group that can be sold and nothing else‚ĶNow, whether the sale of ultimate holding co. will trigger an open offer or not at what rate‚Äďall that points as an investor I will not like to consider if I want to invest in this co‚Ķfor me business profile, competence, IPs and cash generation are more important as other things will follow‚Ķ

If you have any further query on holding structure of Accelya group don’t hesitate to ask further…In my next post I will reply yourfirst query as also provide you some data points which will be useful for you while analysing this co.

Rgds.


(Mahesh Shah) #93
[quote="DAVULURIOMPRAK_, post:90, topic:460534954"] > I tried a lot to collect parent balance sheet figures and as on 2010 they have 400 crores of debt as per draft posted at the time of acquisition .Do u have that data and could u pl confirm the source of debt repayment in 2013 . [/quote]

Now to address your first query Omprakash.....given below are some data points from FY08 till FY12 of Accelya Group....

( in Euro cr. )

FY12

FY11

FY10

FY09

FY08

Equity

0.70

0.64

0.64

0.64

0.64

Total Debt

4.49

7.35

6.63

6.78

6.78

External Debt

1.49

2.68

4.24

4.45

4.72

CPEC

2.97

2.53

2.39

2.16

1.86

Revenue

8.93

5.55

5.23

5.63

5.34

EBITDA

3.58

2.44

2.33

2.70

2.23

PAT

(0.44)

1.04

(0.11)

0.30

0.88

Employees

2167

585

608

609

660

Revenue per employee

41209

94871

86019

92446

80909

OCF

2.33

1.49

1.77

2.25

0.23

Rgdg. Debt,

(1) In 2007, group raised twoforms of debt, Mezzanine Loan and Senior Loan from Indigo Capital & IKB Deutsche Industriebank -- former payable in July'2015 and Senior Loan payable in December'2013..

(2) Both these debts were repaid and cancelled in advance in August'2010.

(3) Subsequently, in August'2010, group took a syndicated loanvia CaixaBank worth USD 5 cr.to be repayablein January'2014.

(4) Before June'2013, group repaid the entire syndicated loan.

Rgdg. source of data and confirmation of debt repayment, these are taken from respective companies' annual returns...Group's consolidated AR is only available upto FY12 (June'ending)...However, some of the subsidiaries who acted as guaranters, their AR is available upto June'2013 and 2013'AR confirm complete repayment of this syndicated loan by the parent.

Rgdg. CPECs, majoity of them bear the maturity as 2036 while those issued afterwards (post 2007) bear maturity as 2039-40....CPECs earn annual return of 7.75 %.

AccelyaKale numbers are reflected in FY12 group figures as acquisition was given effect then.

Group PAT, especially of FY12seems lower majorly becuase of exchange losses as well as revaluation of warrants/other financial instruments to fair value. Summary of FY08-FY12 exchange gain/lossesis given below :

( in Euro cr. )

FY12

FY11

FY10

FY09

FY08

Exchange G/L

(0.18)

0.32

(0.43)

(0.61)

0.72

Rgdg. warrants, there are ~15 lac warrants pending conversion...conversion can be made by 2022...

In FY12, fresh equity was issued (seems majorly to senior management personnel of subsidiaries) at a rate of ~11.75 euros per share of euro 1 each.

Rgds.


(Mahesh Shah) #94

Now, after having an overview of the group, let's go further down the line to assess AccelyaKale's importance to the group :

India

Europe

Americas

Accelya Kale Solutions Ltd.

Accelya World SL

Accelya France SAS

Accelya UK Ltd.

Accelya America SA

+

Accelya Servicios SA

Group Total

Contribution to :

Group's Revenue

33 %

42 %

12 %

6 %

4 %

97 %

Group's Profits

23 %

70 %

3 %

1 %

2 %

99 %

Group's Fixed Assets

36 %

30 %

13 %

14 %

NA

93 %

Group's Total Employees

74 %

7 %

3 %

2 %

4 %

90 %

Revenue Per Employee

(in INR cr.)

0.14

1.95

1.52

1.05

0.27

-

EBITDA Margin

29.75 %

65.15 %

6.50 %

10.16 %

13.65 %

-

OCF/Sales

0.26

0.41

NA

0.09

NA

-

Dividend Payout Ratio

100 %

100 %

71 %

100 % used to acquire own shares

80 %

-

Sales/Fixed Assets

5.08

7.99

5.65

2.39

NA

-

External Debt

Negligible

Negligible

Negligible

Negligible

NA

-

All the above figures are for FY12.....

AccelyaKale is almost the sole vehicle for the group in Asia & Middle East....Europe contributes 63 % to the total group's turnover, America 14 %, Asia 11 %, Middle East 9 % and Africa 3 %.

External Debt is alsonegligible at subsidiary level....the way group financingseems structured is -- whatever cash is generated is distributed and therefore rests in parent and any major financing whatsoever is required is done by the parent via loan to subsidiary....major debt is only raised at parent level and not at any subsidiary level.

Feel free to get back to me in case of any further query.

Rgds.


(Ravjit Singh Bagga) #95

@Mahesh,

That’s gr8 information…

Do you have any information regarding their competitors products and visavis services they provide and the clients they have…

There was a line you wrote " 98% of airline outsourcing is with 11 companies" If you could provide more elaborate details…

Thanx in advance…


(Mahesh Shah) #96

Hi Ravjit,

Cos. are :

Mercator, Lufthansa Sys, SITA, Sabre, Amaedus, Ceicom(Indra), Navitaire, Rene Perez, Maureva, NIIT.

Rgds.


(Mahesh Shah) #97

Some more insights into operations of AccelyaKale from historical perspective :

FY13

FY12

FY11

FY10

FY09

FY08

FY07

FY06

FY05

FY04

FY03

FY02

FY01

Airlines Segment

(INR cr.)

308.62

229.59

180.50

126.73

102.62

86.18

79.50

61.99

48.05

37.61

34.78

30.42

11.84

Annuity based

(INR cr.)

NA

209.65

149.81

104.58

85.78

71.14

60.11

45.17

39.45

26.27

21.44

12.72

1.37

Employees

1595

1602

1392

1403

1310

1260

810

759

660

359

311

250

126

YoY Gr. In Rev.- Airline

36.16 %

25.56 %

42.43 %

23.49 %

19.07 %

8.40 %

28.24 %

29.01 %

27.75 %

8.13 %

14.33 %

156.92 %

25.55 %

Annuity Contribution

NA

91.31 %

82.99 %

82.52 %

83.58 %

82.54 %

75.61 %

72.86 %

82.10 %

69.84 %

61.64 %

41.81 %

11.57 %

Rev. Per Employee (INR Lacs)

19.34

14.33

12.96

9.03

7.83

6.83

9.81

8.16

7.28

10.47

11.18

12.16

9.39


(Vinay) #98

Hi Mahesh,

Great analysis. Can you provide some information on what is the position of Accelya Kale among the 11 Co’s mentioned and what percentage of the total business does it garner. Also what is the total market size. HDFC Report was mentioning of the market size of $800-900 million of which 40% is outsourced.

Which other companies among the 11 mentioned are neutral providers.

Regards

Vinay


(Mahesh Shah) #99

Hi Vinay,

Just a clarification, the 11 cos. that I mentioned was just an example of Revenue Accounting segment of Accelya and it doesn’t capture other segments like BI, Audit, etc. in which it operates… AccelyaKale has ~8.4 % marketshare inmentioned segment…Sabre, Rene Prez, NIIT, Ceicom &Navitaireseem to beneutral providers.

Rgds.


(ashaggarwal) #100

Mahesh,

what kind of growth prospects (topline and bottomline) you see here, over next 2-3 years ? any data points you see ?

rgds