CMP 747.00

Target Price 815.00

ISIN: INE793A01012

MARCH 19th

, 2014

ACCELYA KALE SOLUTIONS LIMITED Result Update: Q2 FY14

BUYBUYBUYBUY

Index Details

Stock Data

Sector IT

BSE Code 532268

Face Value 10.00

52wk. High / Low (Rs.) 805.00/320.65

Volume (2wk. Avg) 19000

Market Cap ( Rs. in mn) 11150.47

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 3038.37 3281.44 3609.58

EBITDA 1351.60 1433.30 1574.43

Net Profit 843.76 883.09 975.76

EPS 56.53 59.16 65.37

P/E 13.22 12.63 11.43

Shareholding Pattern (%)

1 Year Comparative Graph

ACCLEYA KALE SOLUTIONS LTD BSE SENSEX

SYNOPSIS

Accelya Kale Solutions Ltd is an Accelya group

company & a leading solutions provider to the

Airline and Travel industry.

Consolidated operating income of Rs. 733.11 mn for

the second quarter ended December 2013

compared to Rs. 737.90 mn in December 2012.

Consolidated PAT stood at Rs. 203.03 mn compared

to Rs. 209.48 mn in the corresponding period.

Profit before interest, depreciation and tax is Rs.

336.49 mn as against Rs. 342.13 mn in Q2 FY13.

Accelya Kale Solutions has declared an interim

dividend of Rs. 27/- per equity share.

Hawaiian Airlines has chosen Accelya Kale’s

passenger revenue accounting solution, REVERA

PRA, to re-engineer their passenger revenue

accounting process.

Accelya has launched a comprehensive package of

Accelya All-In-One Offer to take care of airlines’

critical financial process.

Accelya has launched REVERA® NEXT. REVERA

NEXT is built to take airline Revenue Accounting

function to the NEXT level.

Accelya has won the IT Company of the Year 2014

at the Air Transport News Awards ceremony in

Istanbul.

Net Sales and PAT of the company are expected to

grow at a CAGR of 16% and 34% over 2012 to

2015E respectively.

PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Accleya Kale Solutions Ltd 747.00 11150.47 56.53 13.22 10.94 700.00

Accel Frontline Ltd 43.85 1305.10 0.54 81.20 1.29 0.00

Financial Tech Ltd 375.25 17307.10 50.03 7.51 0.65 400.00

Cigniti Technologies Ltd 309.45 6441.20 3.42 90.48 12.11 0.00

Recommendation & Analysis - ‘BUY’

Accelya Kale Solutions Ltd, an Accelya group company and leading provider of financial and business intelligence

solutions to the Airline and Travel industry, has recorded consolidated operating income of Rs. 733.11 mn for the

second quarter ended December 2013 compared to Rs. 737.90 mn in December 2012. Consolidated PAT stood at

Rs. 203.03 mn compared to Rs. 209.48 mn in the corresponding period. Profit before interest, depreciation and

tax is Rs. 336.49 mn as against Rs. 342.13 mn in Q2 FY13. For the quarter ended September 2013, the

consolidated operating income and PAT was Rs. 792.77 mn and Rs. 165.62 mn respectively.

The Board has declared an interim dividend of Rs. 27 per equity share. Hawaiian Airlines, the largest carrier in

Hawaii, USA, has chosen Accelya Kale’s passenger revenue accounting solution, REVERA PRA, to re-engineer

their passenger revenue accounting process. The Company will manage critical financial processes for Bangkok

Airways, Asia’s boutique airline. Accelya Kale offers unique solution to small and mid-sized airlines in financial

processing. Accelya is a debt free company. Over 2012-2015E, we expect the company to post a CAGR of 16% and

34% in its top-line and bottom-line respectively. Hence, we recommend ‘BUY’ for ‘Accelya Kale Solutions Ltd’

with a target price of Rs. 815.00 for medium to long term investment.

Financial Highlights CONSOLIDATED

Results updates- Q2 FY14,

Months Dec-13 Dec-12 % Change

Net Sales 736.98 743.08 (0.82)

PAT 203.03 209.48 (3.08)

EPS 13.60 14.03 (3.08)

EBITDA 336.49 342.13 (1.65)

The company’s net profit declines to Rs. 203.03 million against Rs. 209.48 million in the corresponding quarter

ending of previous year, a decrease of 3.08%. Revenue for the quarter slightly decreased by 0.82% to Rs. 736.98

million from Rs. 743.08 million, when compared with the prior year period. Reported earnings per share of the

company stood at Rs. 13.60 a share during the quarter, registering 3.08% decrease over previous year period.

Profit before interest, depreciation and tax is Rs. 336.49 millions as against Rs. 342.13 millions in the

corresponding period of the previous year.

Expenditure:

Break up of Expenditure

Rs. Millions

Q2 FY14 Q2 FY13

Employee Benefit Expenses 298.39 271.29

Depreciation and Amortization Expense

30.03 29.87

Other Expenditure 156.80 146.43

Latest Updates

• Accelya Kale Solutions Ltd has declared an interim dividend of Rs. 27/- per equity share.

• Accelya has announced that it will manage critical financial processes for Bangkok Airways, Asia’s boutique

airline. The scope of services includes the complete Book-to-Cash cycle including passenger revenue

accounting, cargo revenue accounting, sales audit, card billing and miscellaneous billing.

• Accelya Kale Solutions Ltd has launched REVERA® NEXT. REVERA NEXT is built to take airline Revenue

Accounting function to the NEXT level.

• Accelya Kale Solutions has launched a comprehensive package to take care of airlines’ critical financial

process. Accelya All-in-One Offer is specially designed to overcome the challenges of small and mid-sized

airlines in managing their financial function.

• Hawaiian Airlines, the largest carrier in Hawaii, USA, has chosen Accelya Kale’s passenger revenue

accounting solution, REVERA PRA, to re-engineer their passenger revenue accounting process. The solution

has been provided on a hosted basis.

• Accelya has won the IT Company of the Year 2014 at the Air Transport News Awards ceremony hosted in

Istanbul.

Company Profile

Accelya Kale Solutions Limited is part of the Accelya Group, a leading solutions provider to the Airline and Travel

industry. Formerly known as Kale Consultants Limited, the company became part of the Accelya Group in 2011.

Accelya Kale provides comprehensive financial and business intelligence solutions to the airline industry. Accelya

Kale’s solutions are available as hosted and outsourced in pay-per-use models. It also helps them gain insights on

business performance using decision support tools and data analytics.

The company 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

robust industry solutions including BSP, BSP Link, Neutral Fare Proration (NFP) and Simplified Interline

Settlement (SIS).

Experience and knowledge of the airline industry enables the company to upgrade processes to industry best

standards. The company is present in 10 countries and employ over 2000 professionals across the globe.

Business Area

Airline Financial Solutions

� Revenue Accounting

� Miscellaneous Billing

� Refund Management

� Audit and Revenue Recovery

Airline Commercial Solutions

� Decision Support Solution

� Fare Management

Industry Solutions

� Simplified Interline Settlement (SIS)

� Neutral Fare Proration Engine

Subsidiary Companies

a) Kale Softech Inc.

b) Kale Revenue Assurance Services Limited

c) Zero Octa UK Limited

Financial Highlight CONSOLIDATED (A*- Actual, E* -Estimations & Rs. In Millions)

Balance sheet as at JUNE 30th, 2012-2015E

FY12A FY13A FY14E FY15E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 149.27 149.27 149.27 149.27

Reserves and Surplus 1226.07 870.28 1131.36 1357.64

1) Sub Total Net worth 1375.34 1019.55 1280.63 1506.91

Non-Current Liabilities:

Long-term borrowings 0.68 0.05 0.00 0.00

Other Long Term Liabilities 10.26 14.52 16.70 18.70

Long Term Provisions 80.05 123.58 76.62 84.28

2) Sub Total Non-Current Liabilities 90.99 138.15 93.32 102.98

Current Liabilities:

Trade Payables 38.49 92.93 96.65 104.38

Other Current Liabilities 174.96 56.76 325.50 397.11

Short Term Provisions 300.72 994.21 835.14 885.24

3) Sub Total Current Liabilities 514.17 1143.90 1257.28 1386.73

Total Liabilities (1+2+3) 1980.50 2301.60 2631.24 2996.62

ASSETS:

Non-Current Assets:

Fixed Assets

Tangible Assets 163.40 206.83 247.21 286.76

Intangible Assets 121.71 120.25 129.87 137.66

Capital work-in-progress 27.79 0.12 0.13 0.15

Intangible Asset under Development 0.44 19.29 21.99 24.41

a) Sub Total Fixed Assets

399.20 448.98

b) Goodwill on consolidation 402.11 416.84 491.87 541.06

c) Deferred tax assets (net) 67.49 79.42 89.74 97.82

d) Other non-current assets 0.11 0.15 0.35 0.41

e) Non Current Investments 0.06 0.06 0.07 0.08

f) Long Term Loans and Advances 76.40 110.49 143.64 169.49

4) Sub Total Non-Current Assets 859.51 953.45 1124.88 1257.84

Current Assets:

Current Investments 0.00 375.64 450.77 522.89

Trade Receivables 317.70 333.91 420.73 485.81

Cash and Bank Balances 400.63 344.69 317.11 358.34

Short Term Loans and Advances 132.74 58.08 105.50 127.66

Other Current Assets 269.92 235.83 212.25 244.08

5) Sub Total Current Assets: 1120.99 1348.15 1506.36 1738.78

Total Assets (4+5) 1980.50 2301.60 2631.24 2996.62

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12A FY13A FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 2295.87 3038.37 3281.44 3609.58

Other Income 0.00 47.91 55.10 58.40

Total Income 2295.87 3086.28 3336.54 3667.99

Expenditure -1612.65 -1734.68 -1903.23 -2093.56

Operating Profit 683.22 1351.60 1433.30 1574.43

Interest -7.91 -5.28 -5.54 -5.88

Gross profit 675.31 1346.32 1427.76 1568.55

Depreciation -80.70 -115.26 -129.09 -142.00

Exceptional Items 7.77 0.00 0.00 0.00

Profit Before Tax 602.38 1231.06 1298.67 1426.55

Tax -194.52 -387.30 -415.57 -450.79

Net Profit 407.86 843.76 883.09 975.76

Equity capital 149.27 149.27 149.27 149.27

Reserves 1226.07 870.28 1131.36 1357.64

Face value 10.00 10.00 10.00 10.00

EPS 27.32 56.53 59.16 65.37

Quarterly Profit & Loss Statement for the period of 30th June, 2013 to 31st March, 2014E

Value(Rs.in.mn) 30-Jun-13 30-Sep-13 31-Dec-13 31-Mar-14E

Description 3m 3m 3m 3m

Net Sales 792.78 796.95 736.98 795.94

Other income 12.93 13.26 15.03 15.93

Total Income 805.71 810.21 752.01 811.87

Expenditure -502.21 -536.80 -415.52 -453.68

Operating profit 303.50 273.41 336.49 358.19

Interest -1.18 -1.12 -1.23 -1.41

Gross profit 302.32 272.29 335.26 356.77

Depreciation -27.95 -29.76 -30.03 -31.23

Profit Before Tax 274.37 242.53 305.23 325.54

Tax -84.99 -76.92 -102.20 -103.20

Net Profit 189.38 165.61 203.03 222.34

Equity capital 149.27 149.27 149.27 149.27

Face value 10.00 10.00 10.00 10.00

EPS 12.69 11.09 13.60 14.90

Ratio Analysis

Particulars FY12A FY13A FY14E FY15E

EPS (Rs.) 27.32 56.53 59.16 65.37

EBITDA Margin (%) 29.76% 44.48% 43.68% 43.62%

PBT Margin (%) 26.24% 40.52% 39.58% 39.52%

PAT Margin (%) 17.76% 27.77% 26.91% 27.03%

P/E Ratio (x) 27.34 13.22 12.63 11.43

ROE (%) 29.66% 82.76% 68.96% 64.75%

ROCE (%) 55.52% 143.87% 122.00% 113.90%

EV/EBITDA (x) 15.74 7.99 7.56 6.85

Book Value (Rs.) 92.14 68.30 85.79 100.95

P/BV 8.11 10.94 8.71 7.40

Charts

Outlook and Conclusion

� At the current market price of Rs.747.00, the stock P/E ratio is at 12.63 x FY14E and 11.43 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.59.16 and

Rs.65.37 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 34% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 7.56 x for FY14E and 6.85 x for FY15E.

� Price to Book Value of the stock is expected to be at 8.71 x and 7.40 x respectively for FY14E and FY15E.

� We recommend ‘BUY’ in this particular scrip with a target price of Rs.815.00 for Medium to Long term

investment.

Industry Overview

The IT&ITeS industry in India has today become a growth engine for the economy, contributing substantially to

increases in the GDP, urban employment and exports, to achieve the vision of a powerful and resilient India.

Indian firms, across all other sectors, largely depend on the IT & ITeS service providers to make their business

processes efficient and streamlined. Indian manufacturing sector has the highest IT spending followed by

automotive, chemicals and consumer products industries.

Market Size

India’s total IT industry’s (including hardware) share in the global market stands at 7 per cent; in the IT segment

the share is 4 per cent while in the ITeS space the share is 2 per cent. The industry is dominated by large

integrated players consisting of both Indian and international service providers. During the year, the share of

Indian providers went up to 65 per cent-70 per cent due to the emerging trend of monetisation of captives.

India's IT and BPO sector exports are expected to grow by 12-14 per cent in FY14 to touch US$ 84 billion - US$ 87

billion, according to Nasscom.

IT spending in India is projected to reach US$ 71.5 billion in 2013, an increase of 7.7 per cent as compared to US$

66.4 billion projected for 2012, as per a report by Gartner.

The enterprise software market in India is expected to reach US$ 3.92 billion in 2013, registering a growth of

13.9 per cent over 2012 revenue of US$ 3.45 billion, according to Gartner.

Investments

Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments

from major countries.

Between April 2000 and June 2013, the computer software and hardware sector attracted cumulative foreign

direct investment (FDI) of Rs 53,757.60 crore (US$ 7.97 billion), according to Department of Industrial Policy

and Promotion (DIPP).

More recently, online retailing, cloud computing and e-commerce are the major driving forces behind the rapidly

increasing growth in the IT industry. Online shopping has increased with the emergence of internet retailing and

e-commerce.

Some of the major investments in Indian IT and ITeS sector:

• Baring Private Equity Partners Asia plans to buy IT services firm Hexaware Technologies in a deal

estimated at about US$ 400 million

• Cognizant has been selected by the Saudi Electricity Company (SEC) to develop a comprehensive billing

and revenue management solution based on SAP utilities enterprise software to meet the functional,

technical, and operational requirements of SEC's rapid growth

• Prisma Global has acquired majority stake in German technology venture Prisma Gmbh for about Rs 27

crore (US$ 4.00 million). The company will now own the Intellectual Property (IP) of technologies

developed by the German firm

• Wipro Ltd have secured a large IT outsourcing contract worth US$ 500 million from the US-based

financial services company Citigroup. Wipro will be responsible for application development and

maintenance, as well as providing infrastructure management services, for Citi's global operations

• Tech Mahindra has signed a five-year agreement with UBS Fund Services (Luxembourg) (UBS FSL) for its

new platform, Tech Mahindra Managed Data Services (MDS), designed to support asset managers, wealth

managers, investment banks, custodians and administrators. The company’s Brazilian subsidiary

Complex IT has also signed two deals to deliver enterprise solutions for oil and gas, and banking sector

Government Initiatives

As a part of the National Electronics Policy, the Government of India is planning to set-up 15 new laboratories

under public-private-partnership (PPP) model for hardware and software testing. The labs will facilitate

registration and testing of IT products before they are launched in the market.

FDI upto 100 per cent under the automatic route is allowed in Data processing, software development and

computer consultancy services; software supply services; business and management consultancy services,

market research services, technical testing & analysis services.

In the 12th Five Year Plan (2012-17), the Department of Information Technology proposes to strengthen and

extend the existing core infrastructure projects to provide more horizontal connectivity, build redundancy

connectivity, undertake energy audits of State Data Centers (SDCs) etc. The core infrastructure including fibre

optic based connectivity will be leveraged and additional 150,000 Common Service Centres (CSCs) will be setup

to create the right Governance and service delivery ecosystem at the Panchayats.

Some of the major initiatives taken by the Government to promote IT and ITeS sector in India are:

• The Government of India has fast tracked the process of setting up of centres of National Institute of

Electronics and Information Technology (NIELIT) in Northeast India

• The Government of Brazil has liberalised the issue of short term work visas, a move which will make it

easier for Indian IT professionals to take up assignments in Brazil

• India and Vietnam have signed two memorandums of understanding (MoU) for partnership in the field of

information, communications and technology (ICT)

• The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims

to increase revenues of IT and ITES industry from US$ 100 billion to US$ 300 billion by 2020 and expand

exports from US$ 69 billion to US$ 200 billion by 2020

• The Government of India plans to set up 15 new laboratories for testing hardware and software products

under public-private partnership (PPP) model

Road Ahead

As IT is increasingly gaining traction in small and medium business activities, the sector offers impressive growth

opportunities and is estimated at approximately US$ 230 billion–US$ 250 billion by 2020. In a bid to reduce cost,

governments across the world are exploring outsourcing and global sourcing options.

Technologies, such as telemedicine, mHealth, remote monitoring solutions and clinical information systems,

would continue to boost demand for IT service across the globe. IT sophistication in the utilities segment and the

need for standardisation of the process are expected to drive demand.

Digitisation of content and increased connectivity is leading to a rise in IT adoption by media. Emerging

technologies present an entire new gamut of opportunities for IT firms in India. Social, mobility, analytics and

cloud (SMAC) provide US$ 1 trillion opportunity. Cloud represents the largest opportunity under SMAC,

increasing at a CAGR of approximately 30 per cent to around US$ 650 billion–US$ 700 billion by 2020. Social

media is the second most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by 2020.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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