Accelya is a software solutions provider to the global Airline and Travel industry and has more than 20 years of experience in this domain. It offers software products, managed process, technology and hosting services to more than 200 customers, helped by its global parent Accelya group. Company s clientele include 17 of the top 20 global airlines. Accelya s Industry Solutions are driven by active partnerships with industry bodies and customers, and significant domain knowledge. Its customized approach in deploying these solutions supports clients with best fit solutions to match their requirements. Promoters of Kale Consultants Ltd. (Kale family & Vipul Jain & family) sold their 35.61% controlling stake in the Company via share purchase agreement dated 9/9/10 to France based BPO firm, Accelya Holding World S.L. French firm decided to increase the size of open offer to 34.39% as against mandatory 20%. As a result, it acquired 70.17% stake in the Company. The name of the Company was changed from Kale Consultants Ltd. to Accelya Kale Solutions Ltd. following change in management. As on June 14 Accelya Holding World, holds 74.66% stake in the Company following buy back of shares and 6% reduction in the equity capital. Company has reported healthy growth in both revenues and profits since takeover by Accelya group. While Revenues have grown by 74% in 2 years period ended June 13, EBITDA has risen by 268% and net profit by 338%. Buy Back Board of the Company approved buy back in Feb. 12, at a price not exceeding ` 160/- per share for an aggregate amount not exceeding ` 12.97 Crs. (representing 10% of net worth as on June 11). Company bought back 9.54 lacs shares for a total consideration of ` 12.97 Crs. Buy back ensured that Accelya Holding increased its stake to just under 75% - 74.66% - which is the maximum allowed promoter stake for listed private companies. Payment of dividend out of Reserves Company paid 700% dividend in YE June 13 (` 70/- per share FV ` 10/-) amounting to ` 122.25 Crs. cash outflow including dividend distribution tax. This was against earnings of ` 59 per share. Additional dividend was paid out of general reserves & resulted in 138% payout ratio. This also resulted in reserves coming down to ` 87 Crs. as of June 13 from ` 122.61 Crs. in previous year. Reserves also came down by ` 12.97 Crs. due to buy back of shares. Due to reduction in reserves, Company s ROE has shot up disproportionately to 87% in YE June 13 from 29% in PY, although it is also aided by 121% increase in net profit. The dividend yield works out to about 10% due to high dividend payout.
BSE SENSEX/S & P NIFTY 25229/7527 Sector Market Cap./Free Float (` Crs.) 1053/267 Market Price as on 15/7/14 ` (FV `10/-) 705 52 Week High/Low ` 831/518 Equity Shares Outstanding (in Crs.) 1.493 P/E Ratio (Times) (for YE June '13) 11.9 P/B (Times) (for YE June '13) 10.32 EV/EBITDA (Times) (for YE June '13) 7.57 ROE (%) (for YE June '13) 86.82 0.07 Shareholding Pattern as on Jun 14 (%) 0.78 24.49 74.66 Promoter FII DII Others IT Highlights u After acquisition by Accelya Holding, Company now sells entire product portfolio of the parent group, as integration provides cross selling opportunities across the group. Also, post acquisition, it transformed itself from product based company to complete end to end solutions provider, including business process management, which aided in reduction of earnings volatility. u Recently, the company further consolidated its position as the leading solutions provider to the airline industry and added leading global airlines to its customer list including Thai Airways, bmi regional, Air Seychelles, Royal Air Maroc and Biman Bangladesh. u Pay-per-use business model adopted by the Company now, further helps airlines to avoid upfront capital investments and achieve business growth. It also provides the company annuity revenue streams that ensure revenue visibility and foundation for growth. u Although Company is dependent on single industry for its revenues, it has fairly diversified geographical presence, with Middle East and Africa region contributing to 31% to consolidated revenues, Americas 29%, Europe 16% and Asia Pacific including India balance 25%. u Company has healthy balance sheet with zero debt and cash and cash equivalent of about ` 65 Crs. as of Dec. 13. Receivables outstanding as on that date were equivalent to 45 days of sales. u With a high EBITDA to cash conversion ratio of over 86%, and negligible capex requirements, Company can be expected to maintain high payout ratio. u Company closes its year in June. We do not expect high revenue and profit growth in year ended June 14 over previous year. However, in next 2 years it should report at least 15% p.a. growth. The Company is at present available at 11.9x historical P/E. With the high ROE and excellent dividend payout ratio, we expect reasonable returns over medium term. 2
Background Accelya derives its revenues from three sources license revenues, hosted (including license plus hardware and outsourced (including hosted plus business process management). It is one of the few service providers which provides outsourced model where pricing is transaction based. Generally contracts are signed for 3-5 years and implementation takes 1-1 ½ years. Deal size typically range in US $ 12-15 million. The offerings spans across Revenue Accounting, Audit & Revenue Recovery, Credit Card Management, Miscellaneous Billing, F&A Processes and Decision Support & Analytics. As a strategic partner to IATA, it delivers industry solutions including BSP, BSP Link, Neutral Fare Proration (NFP) and Simplified Interline Settlement (SIS). A wide portfolio of solutions, along with the parent company Accelya Holding, enables it to partner with airlines right from the time a ticket or an air waybill is issued, all the way through its entire financial lifecycle and until the data is converted to actionable decision support. Company solutions help airlines integrate and simplify their financial processes; to better manage costs, risks, revenue leakages, cash flows, profitability and overall business performance. Regionwise Revenue - June 13 (%) 16% 30% Middle East, Africa Americas 25% Asia Pacific, India 29% Europe Accelya Kale Solutions Ltd.h is also available on www.balance-equity.co.in 3
Accelya is a pioneer of platform based BPO or outsourced services model for airlines. This business model offers outsourced services on a software platform developed and maintained by Accelya. It combines domain expertise with service orientation (as per SLAs). The company takes complete accountability of accuracy, timeliness and completeness of data. For customers who do not wish to outsource, but use the platform in-house, the company offers Managed Hosting model. Company had 1595 strong workforce as of June 13 spread across 10 countries. The voluntary attrition rate was at 13% for YE June 13, as compared to last year of 15%. Company has 3 wholly owned subsidiaries and step down subsidiaries. Client Addition The Company added many leading global airlines to its customer list. u Biman Bangladesh Airlines Limited, the flag carrier airline of Bangladesh selected FinesseMBS solution to streamline its miscellaneous billing processes. u Royal Air Maroc, the flag carrier airline of Morocco selected FinesseMBS to automate and standardize the entire Miscellaneous billing process. u Air India, the flag carrier airline of India outsourced its passenger, cargo revenue accounting to Accelya. u Thai Airways, the national carrier of Thailand selected Accelya s passenger revenue accounting solution, REVERA PRA, to streamline their passenger revenue accounting process. u bmi regional, the British regional airline, outsourced its passenger revenue accounting, sales audit, refunds, card billing and chargeback processing to Accelya. u Air Seychelles, the national carrier of Seychelles, outsourced its Passenger Revenue Accounting, Cargo Revenue Accounting, Airmail Revenue Accounting and Miscellaneous (Non-Transport) Billing to Accelya. 4
Accelya Offerings Accelya helps airlines manage their financial processes and gain insights on their business performance. It partners with airlines right from the time a ticket or an air waybill is issued, all the way through its entire financial lifecycle, until the data is converted into actionable decision support. Together with Accelya Holding, its expertise spans across all critical airline financial processes across revenue and cost BSP Processing, Revenue Accounting, Card Management, Audit & Revenue Recovery, Refund Management, Miscellaneous Billing, F&A Processing and Decision Support. REVERA Revenue Accounting Accelya helps airlines process over 195 million passenger transactions on REVERA and identify recoverable revenues worth US $ 180 million in audit annually. REVERA is Accelya s suite of solutions that streamline and simplify revenue accounting across passenger, proration, interline, cargo and airmail. REVERA suite includes REVERA PRA, APEX Proration, REVERA Interline, REVERA CRA and REVERA Airmail. During the YE June 13, it has announced a major technology refresh to its flagship product REVERA ver. 11. During YE June 13, Accelya further consolidated its position as a leading financial solutions provider to airlines. The company launched REVERA Airmail revenue accounting solution for airlines to manage their airmail business. With this launch, REVERA, Accelya s leading Revenue Accounting Suite, addresses airline revenue accounting needs across all three processes passenger, cargo and airmail. Finesse MBS Miscellaneous Billing FinesseMBS is SIS-compliant solution that streamlines miscellaneous receivables and payables. Using a single, integrated invoicing and settlement process, FinesseMBS standardizes billing and accounting practices across business units. The highly automated solution improves productivity by reducing manual work, increasing invoicing speed, and minimizing errors and leakage. A powerful contract management engine helps airlines effectively manage pricing contracts and prevent revenue leakage. Over 13 airlines globally, including 3 of the top 20 global airlines, are FinesseMBS customers. This is also the company s initiative on the Cost / Payable side of accounting, thereby completing the entire value chain of Airline finance. Company sees this as a growing opportunity as airlines are increasingly looking at standardizing processes in Direct Operating Cost Management 5
area. Audit and Revenue Recovery Accelya is the leader in revenue recovery and protection services to airlines. Its audit services span across the entire ticket lifecycle from original booking through to the completion of the journey. This is supported by comprehensive recovery services - from raising of Agent Debit Memos (ADMs) to fund collection. Through proprietary platform, skilled staff and best practices, Accelya ensures maximized recovery and minimized errors. EverestAir Decision Support Solution EverestAir is Accelya s decision support solution that helps airlines gain insights on their sales and business performance. The solution analyses revenue data using proprietary models and consultative approach, to guide airline management in informed decision making. It provides real time information and revenue forecasts in a simple and effective view. EverestAir enables airlines to track and optimize sales performance, interline performance and flight profitability. Industry Solutions (IATA Business Partner) Airlines face a complex operating environment and are looking at ways to simplify their business processes and make them efficient and agile on sustained basis. Accelya partners with IATA on industry-wide initiatives and provides strategic solutions that aim to transform and simplify a variety of airline processes. Its industry solutions include Neutral Fare Proration (NFP) and Simplified Interline Settlement (SIS). Accelya is primary technology partner for IATA s SIS platform. Accelya s NFP (Neutral Fare Proration) engine APEX (jointly offered with ATPCO) is the backbone of the First & Final Billing service offered by IATA. As a part BUSINESS AREAS Airline Financial Solutions Revenue Accounting Miscellaneous Billing Refund Management Audit and Revenue Recovery Airline Commercial Solutions Decision Support Solutions Fare Management Industry Solutions Simplified Interline Settlement (SIS) Neutral Fare Proration Engine 6 Accelya Kale Solutions Ltd.is also available on www.balance-equity.co.in
Airlines Industry There are about 200 airlines, which carry out commercial activity and use revenue accounting software. A total of 3.13 billion passengers were expected to fly in 2013- the first time in history that passenger numbers rise above the 3 billion mark. Out of this, top 10 airlines accounted for about 1 billion passengers and top 20 carried more than 2.5 billion passengers. The International Air Transport Association (IATA) forecasted the airline industry revenues of US $711 billion in 2013 and a profit of US $12.7 billion. That compares with revenues of US $ 638 billion and a profit of US $7.6 billion in 2012. The industry load factor was expected to average a record high of 80.3%. World GDP growth, a key driver of airline profitability, is expected to rise from be 2.9% in 2013 to to 3.7% in 2014. Worldwide air travel, measured in revenue passenger kilometers, continued to expand at a rate of 5.3%. Between 2012 and 2016, it is expected to grow at a CAGR of 5%. (Source: International Air Transport Association). However, focus on managing costs and improving efficiencies could drive outsourcing strategies of the industry and aid outsourcing to grow at a higher rate. Industry is moving towards solutions around platforms and SaaS based offerings. Accelya offers its solutions on a pay per use model, which helps lower capex and variable cost for airlines. Financials The company s revenues and profits at a consolidated level have grown substantially in the last 3 years since takeover by new management. Net sales for YE June 13 stood at ` 303.8 Crs., a growth of 39% over the previous financial year. EBITDA went up by 122.6% to ` 134.52 Crs. Net profit was at ` 88.52 Crs., up by 121% over the last financial year. The revenue growth was facilitated by new customers going into production during the year as well as increased transaction volumes for existing customers. The increase in profitability was aided by strengthening of dollar against the rupee. Company capitalizes product development costs regularly. During YE June 13 product development cost amounting to ` 0.67 Crs. has been capitalized as intangible assets. For nine months ended March 14, Company reported revenue increase of only 8.3% Y-o-Y to ` 243.7 Crs. EBITDA went up by 10.7% to ` 108.8 Crs. and net profit by 11.1% to ` 69.34 Crs. Revenue for March 14 quarter includes ` 15.73 Crs. recognized on account of contract termination by one customer. Without considering said revenue on post tax basis, Company has reported 7
4.6% lower earnings q-o-q in March 14 quarter. Also, revenue growth for nine months ended March 14 would be more or less flat without considering this non recurring revenue item. After taking over the Company, new management provided for prior period expenses and loss on sale of logistics business and other non-recurring items for 15 months period ended June 11, amounting to over ` 9 Crs. In year ended June 12 also it provided for such non-recurring items amounting to ` 3 Crs.(net debit). Out of ` 5 Crs. plus provided for doubtful debts in YE June 12, it recovered ` 3.8 Crs. in YE June 13. Company has about 45 days receivables as of Dec. 13, which has risen from about 40 days as of June 13. Concerns u Accelya s main competition comes from captive outfits sponsored by airlines given the confidentiality of data and fewer service providers. At least 20-25% of total 200 airlines run captive outfits to service their revenue accounting function. Airlines source 50-60% of their IT spend in house. Also these spends are not very large as compared to other verticals like BFSI or Manufacturing etc. Any delay in shift of work to outsourcers could impact the growth estimates for the Company. u Significant rupee appreciation can impact Accelya like any export oriented company. u Given the small size of the Company, loss of any customer would impact revenues and profits. 8
Comments u Airlines today see value in single-partner-integrated-solutions approach. Accelya s wide portfolio of solutions, along with the parent company Accelya Holding, enables it to offer airlines a wider choice of solutions and become their strategic solutions provider. u The airline and travel solutions business is seeing a lot of interest in recent times. Many new providers and existing technology vendors are foraying into the business. Accelya is known for its domain expertise and technological excellence, and enjoys the leadership position in airline financial solutions. u The airline industry is amongst the first to be impacted by any major economic or political situations. Accelya is in a good position to mitigate this risk. The company has a large customer base spread globally with strong presence in growing regions such as the Middle East and Latin America. The Company has long term contracts with its customers and has transitioned majority of its customers to the pay per use model. This generates annuity revenues and provides good visibility on business. Consolidated Anuual Financials Period Ended (` Crs.) June '11 (15 mths) June '12 June '13 Revenues 174.32 218.76 303.84 Employee cost 85.58 96.95 111.2 Other Expenses 55.58 65.82 60.67 Product Development Cost capitalised -3.41-4.43-2.55 Total Expenses 137.75 158.34 169.32 EBITDA 36.57 60.42 134.52 EBITDA Margin(%) 20.98 27.62 44.27 Depreciation 15.89 8.07 11.53 Interest 0.93 0.79 0.53 Taxation 0.17 19.45 38.73 Other Income 0.65 7.9 4.79 Forex Loss/(Gain) -0.64-1.96 4.14 Net Profit 20.23 40.01 88.52 Net Profit Margin (%) 11.61 18.29 29.13 Equity Capital 15.88 14.93 14.93 Equity Shares (in Crs.) 1.588 1.493 1.493 Reserves 113.88 122.61 87.03 EPS (`) 12.74 26.80 59.29 Book Value (`) 81.71 92.12 68.29 ROE (%) 15.59 29.09 86.82 Note: Net profit calculations does not consider Forex (Gain)/Loss figures. 9
Consolidated Quarterly Financials Quarter Ended (` Crs.) June '12 Sept. '12 Dec. '12 March '13 June '13 Sept. '13 Dec. '13 March '14 Revenues 69.36 71.86 74.41 78.76 79.28 79.7 73.7 90.31 Employee cost 27.32 27.9 27.13 27.98 28.19 31.52 29.84 30.55 Other Expenses 21.19 15.08 14.64 15.3 16.12 14.25 15.68 16.02 Product Development Cost -0.6-0.23-0.44-0.64-1.24-0.93-1.12-0.93 Total Expenses 47.91 42.75 41.33 42.64 43.07 44.84 44.4 45.64 EBITDA 21.45 29.11 33.08 36.12 36.21 34.86 29.3 44.67 EBITDA Margin(%) 30.93 40.51 44.46 45.86 45.67 43.74 39.76 49.46 Depreciation 2.04 2.81 2.99 2.93 2.8 2.98 3 3.11 Interest 0.18 0.11 0.14 0.17 0.12 0.11 0.12 0.15 Taxation 6.26 9.35 10.14 10.74 8.5 7.69 10.22 15.95 Other Income 0 1.07 0.97 1.47 1.29 1.33 1.5 1.01 Forex Loss/(Gain)/ Exceptional Items -0.78-2.26-0.18-0.57 7.15 8.84-2.85-4.41 Net Profit 12.97 17.91 20.78 23.75 26.08 25.41 17.46 26.47 Net Profit Margin (%) 18.70 24.92 27.93 30.15 32.90 31.88 23.69 29.31 Equity Capital 14.93 14.93 14.93 14.93 14.93 14.93 14.93 14.93 Equity Shares (in Crs.) 1.493 1.493 1.493 1.493 1.493 1.493 1.493 1.493 EPS (`) 8.69 12.00 13.92 15.91 17.47 17.02 11.69 17.73 Note: 1) Revenue for March 14 quarter includes ` 15.73 Crs. recognised on account of contract termination by one customer. Without considering said revenue on post tax basis, Company has reported 4.6% lower earnings q-o-q. 2) Net profit calculations does not consider Forex (Gain)/Loss and exceptional items. Company booked profit of ` 0.78 Crs. in June 12 quarter on sale of stake in subsidiary company. 10
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