Thanks guys..Just went through the thread..very insightful
I think the main concern in this story is the growth. I have no doubt that this is a strong business. However it caters to a structurally weak industry and hence I feel there is only a limit to which it can grow. I have been thinking if the business still has some runway. The growth of the business will depend on the following factors-
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Increase in Passenger traffic- Since their revenue is based on per transaction basis this becomes an important criteria. As per the forecasts, passenger traffic is expected to grow at the rate of 4.9% for the next 20 years. What do you guys make of this?
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Profitability of airline sector- The medium term outlook is good due to fuel costs. Also, I believe the software cost will be a minor portion for the customer compared to other expenses. Accelya Kale will lose the customer only if it goes completely out of the business. Since their softwares are based on financial solutions, Kela is focusing on the pain point of the industry. As per a Forrester Research report(that Kale paid for) the ROI for the airline will be 77% on a risk adjusted basis with payback period of just 8 months.
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New products- One of their main products is RIVERA which is considered one of the best in the industry. All other products , I believe will be cross sold to its customers. The company has been innovating and coming up with new products. Whether these products are good enough to be sold individually is yet to bee seen
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New customers – The top 15 players account for more than 50% of the revenues in the industry. . The top 20 players account for 80% of the passenger volume.
If I go through the list of customers on their website then out of the top 15, Accelya Kale has tapped into just two players – Air France and Cathay Pacific. The total market Kale caters to in terms of revenue is less than 20% of the industry. However, as per an ICICI report, Accelya Kale boasts of 17 of the top 20 companies as its clients. Can anyone verify on this? If its the latter then the scope of growth is lower right?
Would request fellow boarders to share their views on the above issues.
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