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Accelya Kale (NSE:ACCELYA) is a leading provider of technology products and services to the airline and travel industry. It accounts for and manages more than 5 billion financial transactions and 75 million tons of cargo annually. The company provides financial, commercial, cargo and analytical solutions to more than 400 airlines, travel agents, and shippers worldwide. Long term contracts with customers provide good visibility to business. Accelya Kale has an extensive footprint extending practically to the whole world. The company’s major strengths are its extensive business domain knowledge that positions it to better weather the emerging industry trends.
a) Accelya benefits from providing mission critical services to its clients - With more than four decades of experience in the industry, Accelya has developed a broad insight into industry trends, developments and challenges and is better placed to understand its clients’ needs. The company’s cost management portfolio rolled out in the last year, has benefited more than 30 airlines. Accelya provides mission critical solutions to airlines and travel companies. The company’s expertise spans across all critical airline financial processes – BSP Processing, Revenue Accounting, Audit & Revenue Recovery, Card Management, Miscellaneous Billing, F&A Processing and Decision Support. Since these services are mission critical in nature, the clients do not want to change their vendors frequently, which results in sticky customer relations.
b) Increasing trends of digitalization should act as a tailwind - With the world rapidly moving on the digital path, businesses are increasingly concerned about cyber security and data protection. As a result, airline and travel companies depend upon Accelya to manage their financial processes and gain insights into gather business. The company should leverage its portfolio of leading products and rich heritage and benefit from this growing trend.
c) Leading Reputation and Solid client list - Over the years, Accelya Kale has become a well-known brand in the market. Accelya’s IPR-led solutions and in-depth domain knowledge have helped establish a market leading position. Strong industry reputation and quality of services enable the company to retain as well as attract new clients. The company renewed its contract with IATA last year to maintain their SIS platform till 2027. Over the years, the company has developed strong relations with key industry bodies which helps it to easily pocket contracts. Accelya Kale’s client list includes industry leading names such as Air Canada, Air Asia, British Airways, Qantas, Turkish Airlines etc. About 95% of Accelya’s total revenues are recurring revenues.
d) Undisputed leadership post-merger - Its merger with Mercator (announced in 2017) has created a leading global technology-enabled solutions provider to airlines and shippers. Warburg Pincus, the global private equity firm is the majority shareholder in the combined company. The combined entity benefits from a broadened product portfolio and technology capabilities, with expected revenues of more than $200 million and 250 airline customers. Its leading product Revera works on a pay-per-use model, which ensures revenue visibility for the company.
e) Positive Trends in the Airline industry - Growing air travels and falling airfares should support Accelya Kale’s business in the long run. According to IATA, the amount of global air traffic doubles every 15 years and this trend is expected to continue because millennials are more likely to travel by air as compared to the earlier generations.
Challenges
Accelya Kale’s top line is heavily dependent upon the performance of airlines. In fact, the top three customers accounted for nearly 30% of its revenues in 2018. The company has been posting decent results in the past on the back of good performance in the aviation industry driven by low crude oil prices and financing cost. However, the going might get difficult for the airlines as crude oil price rises and smaller airlines feel the pain. A bankruptcy of any one of the airline companies could result in the loss of a key customer. For example, Air Berlin’s bankruptcy last year had a major impact on Accelya’s performance. The company also faces heavy competition from Lufthansa Airlines.
Valuation
Accelya has a market capitalization value of over INR 1300 crores and is currently trading near INR 900 level, very close to its 52-week lows. The shares have fallen so far this year and offer a good entry point for investors. The company pays a dividend and has an impressive yield of more than 5%.
Accelya has strong fundamentals as is evident by its high ROCE and ROE multiples and should benefit from positive trends in the aviation industry in the future.
Conclusion
Accelya partners with airlines and helps them simplify their financial processes. World's leading airlines trust Accelya to power their financial, commercial and cargo operations. Its flexible and scalable solutions grant ease of use and convenience. A good growth opportunity exists for the company, in the form of growing air travels and rising passenger volumes. The company is expecting 65% of incremental revenue growth from cross-selling of services while 35% of the growth is expected to come from new clients. Investors could look into the stock to play the secular trends of growth in the airline industry.
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