Accelya Kale Solutions-Niche & Sticky Business


(Raj) #161

In my view one need to wait(if you already haven’t have a position) for the earning momentum(topline) to start. I have in past waited at companies to start earning growth and the wait was much longer than anticipated.


(bala) #162

if you don’t mind opportunity cost, you can invest in this. management has clearly pointed out next few quarters will be like the current quarter Q4. So expecting sales growth any time soon is difficult. nothing much ishappening on stake sale. parent company is taking out lot of cash through dividend. whether they will continue this high div policy once they take out all their invested money ?

I have exited this stock last week after the results. its extremely difficult to sit on these type of opportunities in this bull market. moved the moneyto Ajanta and repco


(onefoothurdle) #163

I agree with @Varada , they had grown in the recent past and dont have a lot of competition plus i think they are shareholder friendly (with dividends) and a better business then Ajanta (which is also a very good company), I think its better to stick with them and collect the dividends until growth comes especially since they are so cheap.in the short term 1-2 years it might be difficult time but your dividends are yours to keep and when they start performing again it will go up again like anything.


(onefoothurdle) #164

bala where do you get the management commentary? it will be very helpful

thanks


(Varadharajan Ragunathan) #165

Reading between the lines - my sense is that :

)- the sale process of accelya was aborted by the PE last year

)- they are doing a dividend re-cap by taing out dividends out of accelya kale - which means dividends will continue for a long time.

)- the company’s management is ethical, smart and driven. Absolutely clean and faultless to a hilt

)- ultimately we have to trust the management to get revenue traction back. I quite feel they will

At a FCF yield of almost 10%, it is ridiculously undervalued - do remember that no one does 40% EBITDA margin just like that (it’s a sign of a huge moat) and the best part is that the revenues keep accruing (since revenue model is transaction based payments to accelya) given the high switching costs.

I am looking to add to the position and will add further if the stock dips. We must remember that any additional revenue will flow straight through to the bottomline given the non linear business.

That said, there is no momentum in the stock and over the next 6-12 months, neither stock price nor fundamentals might change much.


(Hitesh Patel) #166

I had looked at accelya closely right on the back of looking at MPS.

Risk here seems to be that since they are focussing on pay per use model, they will have to keep acquiring new customers as well as keep hold of the older ones and see to it that their existing customers dont migrate to other companies.

The dividend yield though offers good solid downside protection. Here we have to try to figure out what is the kind of sustainable dividend per share for next couple of year and then decide on downside levels.

If stake sell happens it could be icing on the cake for shareholders (provided it happens at a lot of premium to market price). Since promoters of the parent company also are PE investors there is a high chance of stake sell coming through albeit over the medium term of next 3-5 years.


(Rahul Pasrija) #167

[ Comment too short ]


(Rahul Pasrija) #168

Hi

Apologies as I guess I pressed the wrong button after typing my comments.

In this business (aviation) the trend is towards pay per user models on cloud and growth comes from increasing travelers for existing customers apart from acquiring new customers. The level of stickiness of the products sold is fairly high and chances of losing existing customers are relatively low ( unless the customer goes out of business or gets acquired).

It would be a good fit for quite a few IT services/product companies looking to enter/ strengthen aviation portfolio. Kale itself was on the block for quite some time before Accelya deal fructified.


(Ashish Pandey) #169

Hi,

I read the whole thread today only. I guess some people are expressing doubts that how can a company pay dividends more than the profits for a period. If Dividends>profits, company is dipping in its reserves and paying dividends. I think if a company doesn’t have much opportunities to utilize cash they r generating effectively, its best that they pay dividends, even more than the profits for the period. Many companies have done that, check Sasken etc. Company shouldn’t hoard cash just for the heck of it, neither waste it doing costly/stupid acquisitions. If company pays good dividends, it shows management’s honesty + provides god yields to investors


(Puneet) #170

Disclaimer: No position as of now, in analysis mode with an intent to build a position.

Excellent discussions fellow value pickers, thank you.

Pay per use model is unfortunately not detailed in the last annual report. (if any one knows more please share, else this is a gigantic assumption). But if this is tending towards SaaS business model, then I can tell you that the magic is about to begin. So its not a risk, rather an opportunity. Based on model / business they are into my comments are below.There “CAC” (Cost of Acquiring a new Customer) will always remain higher due to the nature of the business. “Churn” will be always low (unless due to shutdown of acquisition of their customer)due to the high degree of integration required upfront, switching cost in terms of money, time and effort is very high. Their recurringrevenuestreamwill start to build up and will offer strongcommitted recurring revenue stream (ARR - Annual Recurring Revenue). Due to their “expected/anticipated” high CAC, growth will come at the cost of upfront cashinvestments and with their high reserves they are certainly well poised to dive into this model. Note that its very common for high growth rate successful subscription (SaaS) companies to be negative cash producers (high on investment demands upfront, SaleForce (Nasdaq: CRM) the $5B SaaS company will offer you an excellent case study).

Still looking into this. Any comments / thoughts / discussions will be helpful.

Cheers,Puneet


(Prasanna Sankaranarayanan) #171

Puneet - If I’m not mistaken, this is not the focus of the management and they’d rather take growth without much upfront investments unlike the SalesForce model. There are several diffs and it’s not a fair comparison (eg: Rate of market growth, etc);

The idea here is to revive growth with no investments and milking the cash cow as generous dividends. The stock can run up a lot once the signs of growth show up, but so far things have been slow, to put it mildly.


(Kunal) #172

I agree with Puneet’s most of the arguments.

It looks Accelya is dividend play from it’s dividend yield of 5% - which is extra ordinary stats for company with zero debt, above 40% OPM and one of the highest ROE.

Accelya’s model is different than other midcap software companies. If we can confirm visible MOAT and growth, upside potential will be higher. SaaS model is promising.

I am cautious on issue of high dividend payout. Parent eats major chunk of dividend and it’s Parent only wants to acquire value added companies globally (out of money received from dividend). This practice is not preferable for Accelya’s stackholders over long period of time.

Kunal

below.There customer)due recurringrevenuestreamwill strongcommitted cashinvestments

Cheers,Puneet


(Puneet) #173

hmm… sounds like (base on comments) Parent company is dictating AKS business strategy based on her (parent) needs, not in favour of AKS shareholder. Ouch! I hope they won’t let such an awesome opportunity in time pass by.

Cheers.Puneet


(Venkatesh) #174

Has anyone got the latest dividend of Rs22/share in their bank account. I am yet to receive mine and the AGM also got over last week


(Akbar Khan) #175

Ya… got it


(utuser) #176

SHP for Sep 30, 2014

(in %) Sep-14 Jun-14 Mar-14
Promoter 74.66 74.66 74.66
FII 1.12 0.78 0.82
DII 1.35 0.07 0.02
Others 22.87 24.49 24.50
Total 100.00 100.00 100.00

Steady increase in FII participation and significant increase in DII participation.
Can someone tracking Accelya closely elucidate when can we see the impact of the Vueling and GoAir sign ons on the growth?
Disc: Not invested. The ROE numbers got me interested. Just started digging into the company.

(Bravo) #177

Although I like the dividend part and operating leverage, I do not see a strong case for PE rerating for AKL. ICICI sell-side says that there are 200 airlines who use revenue management services. If the overall churn is really low for the industry then it is hard for AKL to sign-up new customers regularly. It usually takes about 8 months to 1.5 years to move to another system which also adds to the inertia of changing systems.

I am also uncomfortable about the fact that the company does not disclose customer numbers, churn rate, and pipeline, which does not provide much visibility in company operations. Moreover, sell-side thinks that 90% of the customers are on SaaS model, so there is not much runway left for on-premise to SaaS conversion. AKL also lacks pricing power as they could not charge higher price for Revera plus upgrade.

However, as they have exposure to high growth routes in Asia, they might benefit from increase in traffic as highlighted by the recent Qz.com’s article.

Disclosure: I am not invested in AKL.


(Varadharajan Ragunathan) #178

Bravo Alpha

1). why do you say it has no pricing power ? To me a 40% EBITDA is an indication of a gillette type of pricing power - sell the software cheap and make steady, consistent trailing revenues that flow to the bottomline. I quite think it’s the converse - they have tremendous pricing power.

2). where did you get the 200 figure from ? It’s a critical piece of data as there are only < 750 worthwhile airlines in the world and knowing the number of airlines AKL is already in is such a critical piece.

I’ve been stuck on figuring out if AKL has head room to grow and any data points would be most useful. Thanks !

Link: http://qz.com/282006/these-five-charts-underscore-why-indigo-just-bought-250-jet-planes/


(Bravo) #179

ICICI sell-side covered AKL. Here is the direct quote from the report.

Significant opportunity but largely in-sourced -Data suggests there are ~200 airlines, which perform commercial activity and use some form of revenueaccounting software. The airline industry flew ~3 billion passengers in 2013 with top 10 together flying~1 billion and top 20 carrying ~80% of the passengers. Back of the envelope calculations suggest thatrevenue accounting could be a ~$1 billion market opportunity but likely spread over multiple years.Further, a significant (~55-60%) portion of these spends are in-sourced while those outsourced areshared by a small number of providers such as Mercator, Lufthansa, NIIT Tech and Indra.

About pricing power, Revera plus offers better feature than old Revera and most people have been upgraded to the new software. However, AKL has not been able to charge higher prices for Revera plus. Not sure what you mean by sell software cheap, 90% plus revenue is transaction-based which relies on volume of bookings, cancellations, interline, and a few other segments.

I agree that is an asset light model with significant operating leverage which helps EBITDA. They run tight operations. For example, they just have 22 people in sales and marketing and also get a lot of help from the parent company.

Bravo Alpha

1).

2). < 750 worthwhile airlines in the world and knowing the number of airlines AKL is already in is such a critical piece.

I’ve been stuck on figuring out if AKL has head room to grow and any data points would be most useful. Thanks !

Although I like the dividend part and operating leverage, I do not see a strong case for PE rerating for AKL. ICICI sell-side says that there are 200 airlines who use revenue management services. If the overall churn is really low for the industry then it is hard for AKL to sign-up new customers regularly. It usually takes about 8 months to 1.5 years to move to another system which also adds to the inertia of changing systems.

I am also uncomfortable about the fact that the company does not disclose customer numbers, churn rate, and pipeline, which does not provide much visibility in company operations. Moreover, sell-side thinks that 90% of the customers are on SaaS model, so there is not much runway left for on-premise to SaaS conversion. AKL also lacks pricing power as they could not charge higher price for Revera plus upgrade.

However, as they have exposure to high growth routes in Asia, they might benefit from increase in traffic as highlighted by the recent Qz.com’s article.

http://qz.com/282006/these-five-charts-underscore-why-indigo-just-bought-250-jet-planes/ Link: http://qz.com/282006/these-five-charts-underscore-why-indigo-just-bought-250-jet-planes/

Disclosure: I am not invested in AKL.


(Vidur Chhabra) #180

I was wondering if any of you (Vivek Gautam, Mahesh Shah, Varadharajan etc.) who are following this stock closely, have any updates or news on Accelya Kale? The last couple of quarters have been relatively slow, I guess this has been indicated by the management. Any news of when a higher growth trajectory might return, triggers such as lower fuel prices, global aviation growth, new clients etc are going to start panning out? Thanks