KALE CONSULTANTS: Flying high on BPO 

There are many Indian software companies that have made a mark in the global IT services arena. However, when it comes to products, these numbers dwindle into single digits. The reasons are clear–very few companies have the wherewithal to market products and fewer still have the capabilities and focus to develop and maintain world-class products. While we still don’t have a product from India that has reached a blockbuster status, there are a few companies who are assiduously trying to achieve it, and Pune-based Kale Consultants is one among them.

Kale Consultants commenced operations as a partnership firm in 1980 in the services areas and Kale Consultants Private Limited, a company formed in 1986, took over the computer business from the partnership firm in the same year. Kale Consultants Private Limited was converted into a public company in 1998 and was subsequently renamed Kale Consultants Limited (KCL). The main promoters of KCL are Narendra Kale and Vipul
Jain. 

The company started operations with just eight professionals and in the initial years concentrated on the domestic market, providing solutions for the service industries, particularly banking, airline and healthcare verticals. KCL also developed educational packages like Tutor and QB. The company’s focus on select vertical markets helped it to show steady growth over the years. The company’s income increased from Rs 4.44 crore in 1995 to Rs 49.95 crore in March 2003 whereas the net profit has increased from Rs 87 lakh in the year 1995 to Rs 3.15 crore in the year ended March 2003. KCL came out with a public issue in the year 2000 offering shares with the face value of Rs 10 at a premium of Rs 120 per share. Currently, the promoters hold 36% of the equity, private corporate bodies hold 6%, NRIs and others hold 10%, and the public holds the balance 48%. 

KCL is focused on product development in the areas of airlines and banking. In fiscal 2003, airlines contributed to 70% of the revenues whereas the banking segment contributed 25%, with others forming the balance. KCL’s key products in the airlines segment are in cargo and revenue accounting. Its customers include Air Afrique, Ansett Australia, Asiana Airlines, British Midland Airways, Iran Airways, South African Airways and VASP. Although Kale operates in both airlines and banking, its strength lies in the airline segment. KCL closed fiscal with revenues of Rs. 49.95 crore and net profit of Rs 3.14 crore. On a consolidated basis, while revenues were flat at Rs 55.16 crore, the net profit rose from Rs 31.80 lakh last year to Rs 3.84
crore.

Its revenue accounting software, Revera, won the prestigious ATTIS 2002 award for the “Best Revenue Accounting System Provider” to the airline industry. Sensing an opportunity in the growing BPO segment, KCL has set up a Airline Processing Center (APC) in Mumbai to provide outsourced services to the airline industry using its proprietary product Revera. This segment is called Managed Process Services (MPS) and provides end-to-end revenue accounting and sales audit services to the airlines industry. KCL has signed a multi-year MPS contract with clients that includes Qatar Airways, Air Luxor and Canadian North, which range over the next three to four years. This segment operates from Mumbai and the company recently opened a new center with a capacity of 200 seats per shift. 

In banking, KCL is currently focused on the domestic markets with mid market banking clients across 500 installations. The company’s products include Plutus, Winbank, SEVA and its latest banking solution suite being Winbank@enterprise for enterprise banking. The Indian market is a price sensitive one and KCL faces competition from number of small and mid-sized players such as Lasersoft, Virmati, Nextstep and Infrasoft among others. Overall, the performance of this division has been on the decline in the recent past. While, the company has plans to re-position the products and target smaller banks in the international market, it would require time and significant investments before they are ready to bear fruit. 

KCL’s development centers are based in Pune, Mumbai and Chennai across 60,000 sq. ft with staff developer strength of 570 equally (old) 534 distributed across airline and banking segments. The company achieves 80% of revenues from the exports market and has three international subsidiaries and a JV based in Malaysia.

In the quarter ended June 2003, KCL reported a disappointing performance with revenues declining 2% y-o-y and 21% q-o-q to Rs 10.98 crore and net profit improving 117% y-o-y but lower by 88% q-o-q to Rs 25.60 lakh. The growth in the net profit over the previous year was due to other income of Rs 39 lakh, without which the company might have posted a loss of Rs 13 lakh. In terms of overall performance, the airline segment continued to dominate the topline with revenue contribution from this segment improving from 65% last year to 73%. Revenues from the banking segment declined 28% y-o-y and 29% q-o-q to Rs 2.31 crore and formed 21% of revenues compared to 29% last year. While the overall operating margins improved marginally by around 50 basis points to 16.75%, these were sharply below the 25.66% operating margins reported by the company in the immediate previous quarter. The sequential decline in the operating margin was due to the fall in operating profit from banking segment, which declined by 84% with operating margins declining from 17% to just 4%. 

While the banking segment continues to remain sluggish, the better performance of the Airlines segment was largely led by Managed Process Services business, KCL’s key offering to the market. Revenues from MPS grew 54% during the year to Rs 3.40 crore with the company adding three new customers. On the other hand, revenues from products and services from the airline segment declined 10% to Rs 4.60 crore during the quarter. Geographically, Europe contributed to 34% of the revenues followed by Middle East and Africa at 25%, India at 21%, Asia Pacific with 17% and the US with 3%. 

With revenues from banking product on a decline, KCL is betting the future on the performance of MPS business. Although airline product segment would continue to be a major part of the company’s overall growth plan, the MPS business is likely to out grow its traditional product business. Realizing this, KCL has plans to increase the capacity of its recently launched MPS center from 200 seats to 800 seats by the year 2006. Globally, the airline industry is going through a tough time, which has impact new product sales. However, with the airline companies looking at reducing costs, KCL’s MPS business, using its proprietary accounting software, is looking to tap the back office business of these companies. KCL has signed multi year contracts with three airlines, that are likely to ensure revenues of Rs 25 crore each year over the next four years. KCL also plans to expand its airline services portfolio to include Ticket Proration, Cargo Sales Audit and Interline Billing among others.

KCL also plans to expand its MPS offerings and provide services in the like Banking, Travel and Transport area. KCL is thus confident of improving its performance largely driven by the success of its BPO segment.

KCL trades at Rs 7038 discounting the projected March 20034 earning per share (EPS) by ten times and March 20054 EPS by 8 times. KCL’s stock price has remained range bound over the past year, as the company revenue growth has been flat. In 

fact, the news of the company entering the BPO segment too failed to generate interest in the stock, as the company’s performance of other division was unimpressive. Going ahead, it is expected that the company to face tough competition in the product segments, the MPS business is likely to drive the growth in the next two to three years. The company seems fairly priced at the current levels and its ability to utilize fresh capacity and improve the size of its bottomline in the coming quarters would drive its share price. Market Performer.

Kale’s revenue accounting software, Revera, won the ATTIS 2002 award for the ‘Best Revenue Accounting System Provider’ for the the airline industry

Sushanto Mitra is the founder of
Technology Capital Partners 

The views reflected here are of the author and not of this publcation. No liability is accepted for losses based on the information presented here