EQUITY RESEARCH: ACCELYA SOLUTIONS INDIA

Accelya Solutions India Ltd, previously known as Accelya Kale Solutions Ltd, is a software solutions provider to the global airline and travel industry. It is in computer programming, consultancy and associated activities. Its geographical segments are Asia Pacific, which includes India, New Zealand, Japan and Australia; Middle East and Africa, including, Mauritius, Zimbabwe, Kenya and Tanzania; Americas, along with U.S and Canada, and Europe, consisting of Holland, France and Portugal. It provides software merchandise, controlled methods, technology and web hosting offerings. Its solutions consist of airline monetary solutions, airline commercial solutions and industry solutions. Its airline financial solutions consist of revenue accounting, cost management, miscellaneous billing, audit and revenue recovery, refund control and ground handling billing. Its enterprise solutions consist of simplified interline settlement (SIS) and neutral fare proration engine.

ABOUT

An Indian company called Accelya Solutions India Ltd. (ASIL) offers software solutions to the world's aviation and travel sectors. The business offers software products, managed processes, technology, and hosting services under the travel and transportation vertical. It engages in consulting, computer programming, and associated tasks. The business provides business process outsourcing, hosting, and support for software applications, as well as software licenses and maintenance. The airline business, cargo, and passengers are all addressed by its solutions. From offer to settlement, its passenger, cargo, and industry platforms facilitate airline retailing. From offer to payment, its integrated cargo platform digitizes shipping procedures. The company operates in about nine different nations and has about 250 airline clients.

Accelya Solutions Americas Inc. and Accelya Solutions UK Limited are subsidiaries of ASIL. A division of Accelya Holding World S.L.U. is Accelya Solutions India Limited. In 2010, Accelya purchased Kale Consultants; in 2017, Accelya was acquired by Warburg Pincus; in 2018, Accelya acquired Anari; in 2019, Accelya was acquired by Vista Equity Partners; and in 2020, Accelya acquired Farelogix.

Accelya offers development centers, managed services centers, and a managed services center in Goa in addition to Mumbai, Pune, and Mumbai. It also has international offices in the US and the UK.

SHAREHOLDING PATTERN

MANAGEMENT:

Strong management and leadership are attributes of ASIL

Mr. James Karr Davidson, Chairman and Director-Non Executive: James Davidson, President and Chief Strategy Officer of Accelya Group, is in charge of the company's portfolio of business and financial solutions. Mr. Davidson served as the CEO of Farelogix Inc., a well-known disruptor and leader in airline distribution and commerce technology, prior to Accelya's purchase of the company. For more than 25 years, Mr. Davidson has worked in the tourism sector.

Mr. Gurudas Shenoy (Managing Director and Executive Director): The Accelya Group has employed Mr. Gurudas Shenoy, 53, as its managing director and executive director for the past 17 years. In addition to his expertise in financial decisions, he has been a crucial member of the leadership team and has worked closely with the senior leadership on planning and operational execution, business integration, strategic initiatives, commercial support, performance management, and technology initiatives.

Mr. Uttam Kumar Bhati (CFO): IBS Pune is where Mr. Uttamkumar Bhati earned his MBA. Since 2004 he has been employed by the Company. Currently, Mr. Uttamkumar Bhati is in charge of the organization's corporate finance and controlling division.

FINANCIAL

Q4FY23 QUARTER AND FINANCIALS

• In Q4FY23, ASIL reported revenue growth of 2.5% QoQ and 18.8% YoY to Rs 122.5 crore, both of which were aided by improved order execution.
• EBITDA increased by 10.2% QoQ and 16.5% YoY to Rs 49.2 crore, with lower staff costs as a contributing factor. In comparison to 32.7% in Q4FY22 and 31.7% in Q3FY23, employee costs as a percentage of sales were 29.5% in Q4FY23. EBIT margin was 33.3%, up from 32% in Q4 FY22 and 30.5% in Q3 FY23.
• Net profit reached Rs 32.1 crore and increased by 27.6% YoY, but only by 11.5% QoQ. In comparison to Q3FY23's 30.4% and Q4FY22's 24.4%, the net profit margin in Q4FY23 was 26.2%. Instead of the typical Rs. 2–3 cr., Q3FY23 had a substantial Other Income of Rs. 13.57 cr (selling of office premises.
• ASIL's financial situation remained stable in FY23, and during the past ten years, the company has enjoyed great financial flexibility, significant revenue growth, and a healthy operating margin. However, due to major declines in airline passenger traffic numbers as a result of pandemic-related limitations around the world, financial performance has been static in FY20 and FY21.
• Following the COVID-19 pandemic, the company has demonstrated solid recovery, which has been aided by a favorable industry demand climate and improved cost-cutting initiatives. According to the corporation, net profit increased by 66.3% YoY to Rs 126.7 crore and sales increased by 27.4% YoY to Rs 469.4 crore in FY23.
• The company said that its PAT margin was 27% in FY23 compared to 20.7% in FY22 and that its EBIT margin increased to 32.32% from 26.8% in FY22.
• We anticipate that the company will post a PAT CAGR of 12% and a revenue CAGR of 11% from FY23 to FY25E, respectively.
• ASIL is a debt-free business. As of June 30, 2023, it has a strong cash and bank balance of roughly Rs 116 crore, which is ample liquidity. The company's short- to medium-term capital expenditure plans do not include any significant debt payback obligations.
• Over the past 19 years, the corporation has consistently paid dividends. In FY23, the firm gave shareholders a dividend of Rs 65 per share, with a 3.9% return. In FY24E and FY25E, respectively, we anticipate paying shareholders a dividend of Rs 67 and Rs 70 per share.

INVESTMENT RATIONALE

• Demand recovery in the travel industry to derive revenue generation

As the world's dormant yearning for travel rekindles, the post-pandemic revival of the travel and tourism industry is gaining momentum. By FY24E, a complete return to pre-pandemic levels is anticipated, and recovery will continue with increased operating profitability, backed by cost-control measures and sound liquidity.

ASIL works with airlines from the moment a ticket or airway bill is issued throughout the whole life cycle of the document until the data is transformed into usable decision support. The Covid issue and travel limitations had a significant impact on the company's sales because the airline sector accounts for the majority of those revenues. However, the company has started to experience better QoQ revenue growth since Q2FY21. In FY23, ASIL recorded a revenue gain of 27.4%. This improvement was primarily driven by a rebound in passenger volumes around the world. 

• Established market position in the airline & traveling industry with marquee clientele

ASIL is a top global technology and service provider to the aviation sector, bringing about revolutionary change quickly and broadly. Through offer to settlement, both above and below the wing, the company's market-leading passenger, cargo, and industry platforms facilitate airline retailing. With operations in nine countries and more than 2,000 specialists worldwide, Accelya serves over 250 airlines.

Accelya has been an industry change partner for more than 40 years, streamlining airline financial and commercial procedures and enabling the aviation sector to better manage the future. The company has been active in the airline industry for more than 30 years and has developed excellent domain expertise, particularly in the area of passenger revenue accounting (PRA), which aids in its ability to successfully compete in the market. As a result, it has a reputable clientele in all main geographic areas.

• Non-linear business model and focused on innovation to generate earnings

ASIL offers a complete end-to-end aviation commerce platform. Its business model is based on a non-linear IPR platform that permits growing revenues without corresponding increases in the number of employees. Additionally, as products have been improved and innovated over time, the business' business process outsourcing (BPO) model has matured, adding to its efficiency gains. Consequently, it has been able to keep up its strong operating profitability.

KEY CONCERN

• Key issues include INR appreciation against the USD, pricing pressure, retaining skilled labor, immigration rules and fees in other nations, and pricing pressure. The company's expansion goals may be impacted by the shifting macroeconomic environment.
• The corporation has historically primarily expanded through standalone business. Subsidiary financial performance has historically been unpredictable.
• The company generates the majority of its revenue from per-transaction pricing, which is connected to airline passenger transactions. A decrease in transaction pricing could have an effect on revenue.
• The top 5 clients of ASIL provided 44% of its revenue, which indicates a significant danger of client concentration. However, the business benefits from subject matter expertise and a loyal clientele in the airline sector.
• The sustainability and scalability of such clients might be negatively impacted by any modification to the contract conditions from large clients, such as non-renewal of contracts (Air India's contract expires on December 31, 2023; 10% of revenues) or larger discounts as a result of strong competition intensity.
• Any reputational damage brought on by a compliance breach might have an effect on the company's growth prospects and new order inflow.
• In the travel business, operating performance is still subject to cyclicality and any unfavorable economic situations.

VALUATION:

The travel and transportation sector's top provider of technology platforms, software, and services is Accelya Solutions India Ltd. (ASIL). Accelya offers top-notch hosting services, managed business operations, and software products. Additionally, it provides passenger solutions in addition to air cargo solutions, which include offer and order management, warehouse management, invoice and settle revenue management, service management, and cargo operations. For more than 40 years, ASIL has provided business-critical financial, commercial, shipping, and analytics solutions. With operations in 14 countries and over 250 airlines as clients, the business has over 3,000 people working for it internationally. To hasten the release of Accelya's newest platform, ASIL purchased Farelogix in FY21. After successfully acquiring Farelogix, ASIL is now concentrating on providing airlines all over the world with an integrated Offer-to-Settlement platform that boosts revenue, boosts brand loyalty, and cuts expenses. ASIL is expanding its skills and leadership team, as well as its global footprint.

ASIL has developed domain expertise and distinguished itself in the market thanks to its laser-like concentration on the airline industry. Future earnings are visible due to the company's non-linear business strategy, strong emphasis on an established clientele in the aviation industry, skilled and experienced management team, robust financial profile, debt-free status, and good liquidity position. We assign a BUY rating with a target price of 1800.

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