The Indian Aviation Industry is Booming and this Little-Known Stock Could be a Big Winner

India's major airlines have ordered nearly 1,000 new jets this year.

This substantial investment, amounting to tens of billions of dollars, is set to drive the aviation industry to unprecedented heights.

According to the International Air Transport Association (IATA), India is likely to overtake China and the United States as the world's third-largest air passenger market by 2030.

The massive transformation will be driven by the rising working group, widening middle-class demography and significant infrastructure investments.

Buckle Up for Boom Times

India's aviation industry is expected to require a fleet of 4,000 aircraft within the next two decades to meet the anticipated surge in demand.

This is a significant increase from its current operational fleet of approximately 600 aircraft as of the end of the financial year 2023.

Domestic airlines have already placed orders for around 1,800 aircraft, laying the foundation for the anticipated growth.

The government is actively fostering this growth through its UDAN scheme, to develop 100 new airports by 2024 and operationalise 1,000 regional routes.

The Indian government is planning to invest US$ 1.83 billion for the development of airport infrastructure along with aviation navigation services by 2026.

The expansion of Indira Gandhi International Airport is underway, with a target to accommodate 109 m passengers by next year.

It is poised to claim the title of the world's second busiest airport, trailing only Hartsfield-Jackson Atlanta International Airport in the United States.

Boeing, a global aviation leader, is optimistic about the growth prospects of the Indian sector. The aircraft manufacturer cites strong fundamentals, a skilled workforce, rationalised fuel taxes and ongoing infrastructure investments as key factors propelling expansion.

The global leader is committing US$ 100 million to train pilots in India and establishing maintenance training partnerships to ensure a steady supply of skilled mechanics.

The prospects of exponential growth offer investors a great opportunity to ride this investment megatrend with the help of this little-known smallcap stock.

Accelya Solutions: Soaring Alongside India's Aviation Boom

A software solutions provider to the global airline and travel industry, this smallcap stock is a direct beneficiary of the growing momentum in the airline industry.

Accelya Solutions partners with the airlines right from the time a ticket or an airway bill is issued, through its entire life cycle until the data is converted into actionable decision support.

The company's forte is revenue accounting, revenue assurance, and cost management.

Over the years, the company has developed strategic partnerships and alliances with established associations, catering to a niche segment. It has built an impressive client roster with over 250 airline customers, travel agents and shippers worldwide.

It has a substantial global footprint, with operations spanning 11 countries. It accounts for and manages over 5 bn financial transactions and 75 m tons of cargo annually.

The business has been erratic owing to the travel disruption caused by the pandemic.

However, since then, it has been growing on a solid footing. Financial year 2023 marked a significant rebound, with the business touching the pre-Covid levels achieved in fiscal 2019.

Looking ahead, the company plans to enhance its business by introducing innovative products tailored to meet the demands of a burgeoning industry.

Accelya Solutions Financial Snapshot (2019-23)

	2018-2019	2019-2020	2020-2021	2021-2022	2022-2023
Revenue Growth (%)	13.20%	-4.85%	-29.53%	26.87%	27.31%
Operating Profit Margin (%)	41.27%	38.43%	33.13%	38.57%	40.00%
Net Profit Margin (%)	24.57%	21.07%	14.53%	20.68%	24.90%
Return on Capital Employed(%)	85.90%	56.92%	25.75%	42.56%	56.10%
Return on Equity (%)	56.41%	39.25%	17.46%	30.40%	44.00%

Ace Equity

Between 2021-2023, Accelya Solution's sales and net profit have grown at a CAGR of 4.2% and 7.3%, respectively. Since the company follows a June year ending, the September quarter is its first quarter of financial year 2024.

During the first quarter of the year, the company's revenues grew by 10% YoY. However, the net profit remained flattish.

The company has no debt on its books, allowing it to be generous to its shareholders. The 5-year average dividend yield stands at a whopping 4.3%.

The well-capitalised balance sheet has paved the way for robust returns. The travel tech company reported an average Return on Equity and Return on Capital Employed of 37.5% and 53.7%, respectively.

In conclusion

The company's sales and profit growth has been muted. However, the long-term prospects look compelling amid the booming aviation sector.

It's robust returns, a well-capitalised balance sheet and hefty dividend payments, make Accelya Solutions an attractive investment opportunity to look out for.

Since the beginning of the year, the stock has remained rangebound, underperforming the broad market index, Sensex. While the stock has fallen by over 3.6%, the Sensex is up 13.6%.

At the current market price of Rs 1,392, the stock is trading at a PE of 17.8 times, a minor discount to its 5-year median PE of 18.7 times.

To know more about the company, check out its financial factsheet and latest financial results.

You can also check out the video version of this editorial on Equitymaster's YouTube channel.

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