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Friday, October 30, 2009

Kale Consultants Ltd:Future growth prospects and outlook

Scripscan:Kale Consultants Ltd

Story:Kale provides innovative solutions to the Travel and Transportation industry.With the objective of focusing on this vertical, in 2003-04, the Company undertook a strategic restructuring of its operations and decided to exit from all other businesses. The banking software business was sold to Onward Technologies Ltd. The software business from Citibank/OrbiTech was divested to Polaris Software Limited while the Generic Software Services Business was hived off to an independently managed subsidiary Synetarios Technologies Limited.At the same time to expand the airline vertical to the travel segment the Company acquired Cognosys Software Private Limited. This Company has since been re-christened as Kale eTravel Technologies Limited and merged with Kale.

The prominent products whose IPR is wholly owned by Kale are as below:

APEX: IATA approved Kale's APEX, as an industry standard for Neutral Fare Proration (NFP) - (one among only two to be so approved along with CIPS by ATPCO). APEX is an industry leader in automated proration. It accurately prorates large volumes of tickets with highly complex Proviso and Special Prorate Agreements (SPAs), thereby enabling correct revenue sharing between airlines.

REVERA: Winner of the ATTIS award for the "World's Best Airline Revenue Accounting System", REVERA is a new generation solution for passenger revenue accounting and is a component-based, highly scalable system that leverages industry best practices. With its powerful Business Intelligence capabilities and end-to-end functionality, REVERA delivers real business value to the airline. It empowers the customer to transform revenue accounting function from a transaction processing environment to a strategic tool - enabling them to devise competitive strategies to succeed in the market place.

CSP: A ComputerWorld Laureate for 21st Century Achievement Award for Cargo Solution, CSP is an enterprise wide, modular air cargo management system designed to meet the end-to-end needs of cargo carriers of all sizes. Using a component-based design, CSP provides a comprehensive set of facilities for the airline cargo business, from Schedule Creation to Revenue Accounting. In between, CSP covers all functionality related to Allotment Management, Reservations, Space Control, Operations, and many other areas. It also provides support for multiple types of cargo, including airmail, and multiple forms of transport, including air and truck.

CSP-AMBER: An end-to-end airline Cargo Revenue Accounting solution, CVSP-AMBER, enables an airline to improve financial control, enhance decision-making and automate the revenue accounting processes so that financial management becomes accurate, timely and maximize revenue. CSP-AMBER minimizes the costs associated with undercharging, overpaying and foreign exchange exposure and shortens the time-span to billing, thus increasing cash flow. Its fully automated proration functionality adds significantly to the profitability of cargo operations.

COPS: COPS is a proration engine that quickly prorates each ticket according to IATA Prorate Agency rules and the Special Prorate Agreements (SPAs) that exist between airlines. It is a very popular and widely used solution and can be deployed on a variety of platforms including mainframes and open system environments.

MERCURY: Mercury is a comprehensive system that automates various aspects of cargo ground handling operations. This includes Airway Bill loading / capture, matching of goods, discrepancy/damage recording, consignment location and imports / exports processing (customs clearance, invoicing, building manifests, flight departure recording).

Kale's state-of-the-art air cargo ground handling solution not only meets the operational requirements of a typical 24 x 7 set up, but also communicates with various airlines on a real-time basis. Additionally, MERCURY meets all the requirements of IATA AHM Section 804/Section 5.

Business Model: Kale has been focused on earning revenues from its Intellectual Property Rights (IPR) since inception. The traditional revenue model of an IPR based business has been the classical Initial Licensing Fee (ILF) model, where an upfront license fee was collected from a customer and subsequent years would see relatively small AMC incomes from the same customer. It meant that one looked for new sales every year just to replace revenues. The challenges in doing this whilst selling large enterprise-wide applications to an industry with a very finite customer set can well be imagined. Over the past few years, a concerted effort has been made to shift from the traditional revenue model to a model involving long-term contracts that could provide with recurring and sustainable revenues for longer periods. Kale today derives value from its IPR in three ways:

1. MPS: Here Kale does the entire business process and is an internal customer for the product. Contracts are typically of 4-5 years and based on a per transaction fee.

2. Hosted: Here Kale provides the application and infrastructure and customer uses the system. Charges are per transaction for product, hardware, system software and system management services. Typical contracts would be for 4 - 5 years in duration.

3. Licenses: Here customer installs the product on their infrastructure. Revenue model is now mostly RTU (Right to Use) a per transaction fee instead of ILF.These revenue models lead to long term, periodic annuity type revenues. Increase in periodic annuity type revenues over the years makes it possible to have smooth and committed revenue flows, making the predictability of revenues more accurate.Annuity type revenues guarantee the stability of income flows and reduce lumpiness in revenues.

Conclusion:Kale is trading at single digit valuations its forward earnings. Company is at a take-off stage. Considering continued growth in Aviation industry, Kale has tremendous growth prospects for next 3-5 years.Stock is grossly undervalued and is likely to be re-rated in near future.A good buy at dips.

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