Company Update

October 10, 2016

Rating matrix
Rating : Buy Accelya Kale Solutions (ACCELYA) | 1380
Target : | 1600
Target Period : 12-18 months
Potential Upside : 16% Riding on conducive aviation sector dynamics
Accelya Kale (Accelya), a focused IT player in the aviation industry, is
What’s Changed?
likely to be a key beneficiary of favourable macros like growing air traffic
Target Changed from | 1050 to | 1600
EPS FY17E Changed from | 57.2 to | 62.4
and stable crude oil prices. We expect Accelya’s earnings to grow at
EPS FY18E Changed from | 63.2 to | 73.0 14.5% CAGR in FY16-18E and maintain its strong return ratio profile. We
Rating Unchanged recommend BUY on the stock with a revised target price of | 1600.
Ke y take aw ay from FY 16 annual repor t…
Key Financials i) Accelya’s topline grew 12.6% YoY to | 339.7 crore while net profit grew
| crore FY15 FY16 FY17E FY18E 23.2% YoY to | 83.0 crore with a 110 bps improvement in EBITDA margin
Net Sales 303.1 341.0 383.9 441.4 at 39.0% in FY16, ii) in terms of operating cash flows (OCF), it grew 21.6%
EBITDA 112.9 132.9 151.6 176.4 YoY to | 80.6 crore while OCF/EBITDA improve to 60.7% in FY16 vs.
PAT 67.4 83.1 93.1 109.0
57.7% in FY15, iii) Accelya continued its high dividend payout of ~81% in
EPS 45.2 55.6 62.4 73.0
FY16 resulting in dividend per share of | 45/share (3.2% dividend yield).
iv) in terms of strategy, Accelya will focus more on the low cost carriers
Valuation summary (LCC) market to capture the fast growing share of the regional airline
FY15 FY16 FY17E FY18E market. Currently, Accelya has eight LCC airlines using its flagship suite
P/E 30.6 24.8 22.1 18.9
REVERA - a revenue accounting software with 25 years of experience
Target P/E 24.4 19.8 17.6 15.1
transacting $527 million of revenues annually, v) in terms of management,
EV / EBITDA 17.7 15.1 13.2 11.4
P/BV 17.9 18.2 17.9 17.8
Neela Bhattacherjee has been appointed as Managing director in FY16.
RoNW 60.0 72.9 81.7 94.4 Philippe Lesueur stepped down as Chairman and Director while John
RoCE 84.0 99.2 112.6 129.5 Johnston would take over as Chairman and vi) Accelya launched
“Analytics and Consulting services” that would enable the airline industry
to capture untapped opportunities. Accelya highlighted that one of its
Stock data
clients has already attained $90 million of revenues.
Market Capitalization (| crore) 2,061.2
Debt (| crore) 0.0 F av o ur ab le m a cro s for i t s ver ti ca l : a vi at io n i n d us t r y…
Cash and Cash Equivalent (| crore) 26.8 Macro environment for Accelya’s key vertical i.e. global airline industry is
Enterprise Value (| crore) 2,034.4 turning out to be favourable. The global airline industry is not only
52 Week High / Low (|) 1475 / 787 witnessing strong traffic but has also seen a sharp drop in crude oil
Equity Capital 15
($108/barrel in 2013 to ~$45/barrel in 2016) resulting in huge saving for
Face Value | 10
the airline industry of ~$100 billion. The huge saving in fuel cost has
enabled the industry to channel some saving in technology to improve
efficiency, reduce redundant processes and focus on increasing the
outsourcing pie. Going ahead, the growing air-traffic along with lower
Research Analysts crude oil prices augur well for niche pure play airline solutions provider
Deepak Purswani, CFA like Accelya Kale Solutions. Since Accelya mostly works on a pay-per use
deepak.purswani@icicisecurities.com business model helping airlines to avoid upfront investment, an improved
airline business environment would lead to improved revenue visibility
Tushar Wavhal for the company.
tushar.wavhal@icicisecurities.com
Better growth on client mining & favourable aviation dynamics…
Deepti Tayal Accelya is the only niche pure-play IT company (airline solutions provider)
deepti.tayal@icicisecurities.com in our coverage universe which had better visibility in terms of earning
growth of ~15% in FY15-18 on the back of better client penetration and a
favourable macro scenario for the aviation industry. Furthermore, Accelya
is one of the few companies in our IT coverage, which offers very high
dividend payout (~80% in the last five years) resulting in a much better
return ratio than other companies. However, currently it is trading at 19.2x
FY18 EPS leaving limited upside. Hence, we have a BUY recommendation
on the stock with a revised target price of | 1600.

ICICI Securities Ltd | Retail Equity Research

 C lient mini ng may lead to higher re venue growth in comi ng
ye ar s...
Accelya continues to increase its revenue share among its existing clients.
For example, Brussels Airlines selected Finesse Cost Solutions to
efficiently manage its direct operating costs (DOC). This is an extension of
an earlier contract of FinesseMBS, eSmash and sales audit solutions. With
FinesseCost solution, Brussels Airlines (managing 50 aircraft operating
some 300 flights daily connecting capital of Europe to over 90 European
and African destinations) would now move towards paperless invoice
processing and would eventually improve its cost control measures.

Latam Airlines group (one of the largest airline group with 68 million
passengers) has selected Accelya’s Revera Pra to standardise the
passenger revenue accounting processes is an extension to earlier
contract of Latam using interline billing, audit & revenue recovery, card
management and airline market share analysis.

IATA, a strategic partner of Accelya since 2009, has renewed its contract
for managing its simplified invoicing and settlement (SIS e-invoicing)
platform with invoices worth $70 billion in 2015. This is being used by
1800 participants worldwide. Accelya would also be managing its disaster
recovery (DR) site along with renewed contract. The company has been
involved with IATA’s billing and settlement plan (BSP) operating for the
last 36 years and is one of the largest BSP processing centres to IATA.
Accelya also supports BSPLink, IATA’s comprehensive distribution
platform for the BSP community.
S ubd ue d crude oil pri ces, risi ng p asse nger/car go t r affi c
bode we ll fo r avi ation i nd ustry…
Crude oil prices have corrected from ~$108 per barrel in 2013 to ~$45
per barrel in 2016 leading to a decline in fuel expenses (33% of total
expense to 20% in 2016) from $230 billion in 2013 to ~$127 billion in
2016. This could lead airline companies to save ~US$100 billion. The
companies can invest a part of this on technology to improve efficiency,
reduce redundant processes and increase the outsourcing pie (~50% in-
sourcing). According to IATA, transportation of 3.8 billion passengers and
53 million metric tons of cargo is expected in 2016 implying 6.2% and
2.1% passenger and cargo growth, respectively. Airline revenues are
expected to reach US$709 billion in 2016 from US$564 billion in 2010 with
profit reaching US$~40 billion from US$17 billion in 2010 and average
profit of $10.4 per passenger in 2016 from $6.2 in 2010. Increasing air
travel due to lower crude oil prices could augur well for niche pure play
airline solutions provider like Accelya Kale Solutions to grow in the
coming years due to its pay-per use business model helping airlines avoid
upfront investment thereby leading annuity revenue streams ensuring
stable revenue visibility for the company.

ICICI Securities Ltd | Retail Equity Research Page 2

Financial summary
Profit and loss statement | Crore Cash flow statement | Crore
(| crores) FY15 FY16 FY17E FY18E (| crores) FY15 FY16 FY17E FY18E
Total Revenues 303 341 384 441 Net profit before Tax 107 128 140 164
Growth (%) (4.3) 12.5 12.6 15.0 Depreciation & Amortization 13 13 15 17
Total Operating Expenditure 190 208 232 265 WC changes (18) (10) 6 8
EBITDA 113 133 152 176 Other non cash adju. (3) (5) - -
Growth (%) (15.5) 17.7 14.1 16.3 CF from operations 66 81 114 134
Depreciation & Amortization 13 13 15 17 Capital expenditure (9) (21) (20) (20)
Other Income 3 5 5 5 ∆ in investments (3) 13 - -
Interest (0) (1) (1) (1) Other investing cash flow 1 14 0 0
PBT before Exceptional Items 107 128 140 164 CF from investing Activities (8) (7) (20) (20)
Growth (%) (17.4) 19.8 9.5 17.1 Issue of equity - - - -
Tax 39 45 47 55 ∆ in debt funds - - - -
PAT before Exceptional Items 67 83 93 109 Dividends paid (56) (69) (91) (108)
Exeptional items - - - - Other financing cash flow (0) (1) (1) (1)
PAT before MI 67 83 93 109 CF from Financial Activities (57) (70) (92) (109)
Minority Int & Pft. from associates - - - - ∆ in cash and cash bank balance 2 4 2 5
PAT 67 83 93 109 Effect of exchange rate changes (0) 1 - -
Growth (%) (22) 23 12 17 Opening cash 23 22 27 29
EPS 45 56 62 73 Closing cash 22 27 29 34
EPS (Growth %) (21.8) 23.2 12.2 17.1

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Balance sheet | Crore Key ratios

(| crores) FY15 FY16 FY17E FY18E (Year-end March) FY15 FY16 FY17E FY18E
Equity 15 15 15 15 Per share data (|)
Reserves & Surplus 100 98 100 101 EPS-diluted 45.2 55.6 62.4 73.0
Networth 115 113 115 116 Cash per share 14.6 17.9 19.6 22.9
Minority Interest - - - - BV 77.1 75.8 77.0 77.8
Liabilties & provisions 6 7 7 8 DPS 60.0 70.0 71.0 72.0
Operating Ratios (%)
Source of funds 122 120 122 124 EBITDA Margin 37.3 39.0 39.5 40.0
PBT Margin 35.2 37.5 36.5 37.1
Net fixed assets 29 35 40 43 PAT Margin 22.2 24.4 24.3 24.7
Goodwill 46 42 42 42 Return Ratios (%)
Other non current assets 0 1 1 1 RoNW 60.0 72.9 81.7 94.4
Loans and advances 6 20 22 26 RoCE 84.0 99.2 112.6 129.5
Current Investments 37 24 24 24 RoIC 69.9 86.6 105.3 126.6
Debtors 37 39 44 51 Valuation Ratios (x)
Cash & Cash equivalents 22 27 29 34 P/E 30.6 24.8 22.1 18.9
Other current assets 21 28 28 28 EV / EBITDA 17.7 15.1 13.2 11.4
Current liabilities 22 20 23 26 Price to Book Value 17.9 18.2 17.9 17.8
Provisions 67 89 100 116 Turnover Ratios
Debtor days 45 42 42 42
Application of funds 122 120 122 124 Creditors days 14 13 13 13
Solvency Ratios
Total Debt / Equity - - - -
Current Ratio 1.4 1.3 1.2 1.1
Quick Ratio 1 1 1 1

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research Page 3

RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns
ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ICICI Securities Ltd | Retail Equity Research Page 4

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