Kale Consultants at Rs 143 near it’s 52 Week High of Rs 150….More Upside indicated….Promoters agree to sell out their full diluted holding of 35.61% at Rs 172 to Spain based Accelya Holding World SL…

Vikram Garg…..this blog on Kale Consultants is in response to your request 

In short,my sense is that the Share Price of Kale Consultants will rise from Rs 143 in the years to come….though I’m not so gung ho on the way the Promoters have exercised Corporate Governance…..However It’s domain expertise in providing software products and services to the Travel and Transportation Sector is not in question…though in 25 years of it’s existence in serving this niche market of the Aviation Sector it has not managed to scale up business    

After asserting in the Annual Report that the future is promising,It seems a bit curious that this full 35.61% diluted Equity Stake sell off by Promoters is taking place now….. when the Company celebrates it’s 25 years of existence and when the Networth has crossed Rs 100 crs !….now Promoters Networth also should cross Rs 100 crs once they sell off……..

5669478 Equity shares of FV Rs 10 held by the Promoters of Kale Consultants will shortly be sold off to Barcelona based,Accelya Holding World SL at Rs 172 as agreed….Kale Consultants share Price is Rs 143 and near it’s 52 week high of Rs 150….This deal should trigger an open offer at atleast Rs 172

Promoters have been allotted a fair number of shares at Rs 44.01 just earlier this year on March 30,2010 and June 11,2010 on conversion of preferential warrants…also in July 2010,the Company had informed BSE and NSE that there were no truth to the fact that the Promoters were looking to exit and were in talks with Wipro,NTT and Verizon for this

Then just two days ago,and one day after media broke the story of the sale,the Company informed the Stock Exchanges that they have received notice from the Promoters of their planning to sell of their full holding as above….these include the shares allotted just a few months ago at Rs 44.01

….so that would mean gains of over 290% inside months to the Promoters on these new shares…Wow !….so should shareholders grudge Promoters Chairman Narendra Kale,Nanda Kale and MD,Vipul Jain these preferential allotment gains ?…..

How have shareholders been rewarded ?….just under 17% dividend payout…..Earning Rs 19 crs in FY 10 and notching up a diluted  EPS of over Rs 13.50 on a year end equity of Rs 13.8 crs,Kale Consultants has declared a dividend of Rs 2….this will mean a net outflow of Rs 3.2 crs inclusive of Dividend Distribution Tax

MD and CEO,Vipul Jain has also earned a Gross Remuneration of Rs 1.49 crs of which Salary Level is Rs 1.37 crs…in FY 09 the Remuneration was over Rs 2 crs….you can view this as a circle source to fund the preferential allotment to him at Rs 44.01…. he will remain to head the Company after the acquisition

The Equity is now Rs 14.69 crs…Q1 FY11 PAT of Rs 5 crs indicates Company is on track to manage Profits of over Rs 20 crs this year…so EPS levels will remain over Rs 13…so the Earnings Multiple is under 11….Book Value was a shade below Rs 81 at March 31,2010 with Networth at just over Rs 112 crs…this would cross Rs 135 crs this year and the Book Value would move past Rs 90…thus Book Multiple is just over 1.5

It’s got Book Investments of Rs 33 crores at March 31,2010,most of it in subsidiaries in USA,UK and India …of this a significant part of over Rs 24 crs is invested in the wholly owned UK Subsidiary, Kale Revenue Assurance Services Ltd 

Kale Consultants is a near Zero Debt Company….but it may lose the advantage of STPI sops next year…last two years P & L A/c reflects hardly much tax after MAT Credits…coming years may be different

With a Foreign Parent scheduled to adopt  it now,Kale Consultants looks like being in a better global position to unlock some more business potential and scale up operations and hopefully reward shareholders with a better and higher dividend payout policy

Interesting Times ahead for Kale Consultants…at Rs 143 currently and with an open offer looming in the short term at Rs 172 and with potential scale up of business in the medium to long term,there seems more upside to the Share price even near it’s current 52 week high….limited downside in the short term

Hope this Blog on Kale Consultants is useful to not just Vikram Garg,who requested for it, but all of you out there

Cheers !