Kale
Consultant's MPS business grows by 54%
Kale Consultants Limited, India's leading provider of products-based
software solutions for Airline and Banking industries, has
reported a net profit of Rs 2.56 million for the quarter
ended 30th June, 2003, showing an increase of 108% against
a profit of Rs 1.23 million reported during the corresponding
quarter in the previous year.
The total income was at Rs 113.67 million compared to Rs
115.63 million during the corresponding quarter in the previous
year.
The export revenue for the period stood at Rs 86.15 million
and formed 79% (71% in Q1 FY03) of the operating income
of the company.
The operating profit margin (excluding other income) increased
from 16% to 17% due to cost rationalization and cost alignment
measures taken by the company.
Commenting on the performance, Mr. Vipul Jain, Managing
Director said, "We strongly believe that our IPR driven Managed
Process Services for the airlines industry can grow significantly
and form a back-bone to our vision of being a leading global
player in our chosen domain.”
Geographical Spread
The customers of the company
are well spread across the world, with Europe contributing
34% (12% in Q1 FY03), followed by Middle East/Africa with
25%, India with 21%, Asia Pacific with 17% and USA with 3%.
The regional diversity makes it less vulnerable to region
specific risks.
Airlines Division
Continuing its growth path, the Airlines division grew to Rs.
80 million from Rs. 73 million. The MPS business was the key
contributor showing a growth of 54% to Rs. 34 million. Products
revenue includes both from PRA and cargo solutions. Kale has
expanded its service offerings in the MPS business from Revenue
Accounting to Audit Services. At present, the company offers
end-to-end Revenue Accounting and Sales Audit services to the
Airline industry. It plans to expand its airline services portfolio
to include Ticket Proration, Cargo Sales Audit and Interline
Billing among others. Branding its unique, IPR based BPO business
as MPS, Kale has built a niche in the outsourcing value chain.
The branding highlights the value-added nature of Kale's offerings,
wherein the complete responsibility and ownership of outsourced
business processes rests with Kale. Thus, the value to customers
is not only cost arbitrage, but business transformation and
optimization as well. The business model is not based on a per
seat pricing, but on a per transaction cost and thus the productivity
benefits accrue to the company. To expand its outsourcing business,
Kale has set up new facilities in Mumbai which was inaugurated
by Mr. Kiran Karnik, President - NASSCOM in 2nd week of July
03. Currently, the centre accommodates around 200 people per
shift. With plans to recruit 800 employees by FY06, the centre
will be ramped up in two more phases. The state-of-the-art MPS
centre uses Kale's award winning software products (REVERA™,
APEX™, FAREGAIN™ and PRISM) to provide outsourcing services.
New Business Development
Kale recently appointed Mr. George Johny as Vice President
- New Business Development. He will be responsible for identifying
new areas of business opportunity in the outsourcing space
outside the Airlines vertical. An electronic engineer, George
has an illustrious career with APAR Technologies, BAAN and
Tata-Nelco in various capacities.
Predictable Revenue Streams
Over the years, Kale has developed a business model,
which provides stable revenue streams on the one hand and growth
on another. The stable recurring revenues from AMC and growing
MPS business have reduced lumpiness of earnings significantly.
The combined revenues from MPS and AMC accounted for 52% of
operating revenue during Q1 FY04 as against 42% in Q1 FY03.
The multi-year MPS contracts - Qatar Airways-4 years, Air Luxor-3
years and Canadian North-3 years, enhances the long-term visibility
of revenues. Thus more than Rs 250 million per annum of revenues
are signed and committed business with a long term visibility.
Total committed business is estimated at Rs 1000 million over
next 4 years.
Offshore Outsourcing
Airlines industry has been slashing costs sharply due to competitive
pressures over last two years. Offshore outsourcing is becoming
a priority for the industry due to multiple reasons - restrictions
on capital investments, pressure to reduce operating costs,
improve efficiency and increase flexibility.
Revenue accounting is one of the functions best suited for
outsourcing since it is labour intensive. Apart from lower
costs, some of the other benefits of outsourcing are use of
expertise, single point responsibility and ownership of the
process and application software, continuous process improvement
towards global best practices, shift from capex to opex, fixed
cost to variable cost model and pay for value delivered. Global
airlines industry caters to more than 1300 million passengers
per year and hence even a fraction of the revenue accounting
volume outsourced to India can be huge for the limited number
of players in this space. Kale has acquired competitive edge
in the revenue accounting space globally due to its high value-added
services based on domain knowledge and IPRs. Kale's product
"REVERA™" has been ATTIS award winner for the world's best
revenue accounting system.
Business Outlook
The company's core strategy around Enterprise software solutions
and Managed Process Services is finding increasing traction
with customers. These represent very large opportunities and
the company has proved its ability to compete on a global basis.
Kale will continue to focus on the core strategy and expects
significant increase in top line due to an improved external
environment. Simultaneously, the company expects to improve
it's profitability in the current year on account of change
in business mix, control on operating expenses and productivity
gains. The company's product "APEX™" has been selected by the
International Air Transport Association (IATA) as one of the
two solutions for the neutral fare proration (NFP). This is
a very important milestone with significant implications for
the future growth. IATA expects NFP to provide airlines with
significant cost reduction and improvements in the quality and
timeliness of information.
Kale is the only India-based software player with a complete
integrated suite of products for the Airlines industry, targeting
the Passenger, Cargo and Organizational level requirements.
The MPS growth plans are based on a three-prong strategy -
increased customer acquisitions, increased service offerings
in the Airlines domain and penetration into new verticals
like Banking and Travel & Transport. The increasing trend
towards offshore outsourcing would put Kale on a sustained
growth path.
Investor Relations
Kale Consultants Ltd is committed to create long-term sustainable
shareholder value through successful implementation of its growth
plans. The company's investor relations mission is to maintain
an ongoing awareness of its performance among shareholders and
financial community. For additional information, please contact:
Mr. Sumeet Nadkar
Chief Financial Officer
Kale Consultants Ltd.
Tel: 91-22-28259580
Email: Sumeet_Nadkar@kaleconsultants.com
Safe Harbor Certain statements in this release
concerning our future growth prospects are forward-looking statements
which involve a number of risks and uncertainties that could
cause actual results to differ materially from those in such
forward-looking statements. The risks and uncertainties relating
to these statements include, but are not limited to, risks and
uncertainties regarding fluctuations in earnings, our ability
to manage growth, intense competition in IT services including
those factors which may affect our cost advantage, wage increases
in India, our ability to attract and retain highly skilled professionals,
time and cost overruns on fixed-price, fixed-time frame contracts,
client concentration, restrictions on immigration, our ability
to manage our international operations, reduced demand for technology
in our key focus areas, disruptions in telecommunication networks,
our ability to successfully complete and integrate potential
acquisitions, liability for damages on our service contracts,
withdrawal of governmental fiscal incentives, political instability,
legal restrictions on raising capital or acquiring companies
outside India, and unauthorized use of our intellectual property
and general economic conditions affecting our industry. The
company does not undertake to update any forward-looking statement
that may be made from time to time by or on behalf of the company.
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