>Rolta India (PRABHUDAS LILLADHER)

Disappointing performance

■ Overall performance - Disappointing: Rolta India (Rolta) reported weak numbers for Q3FY09. The revenues declined by 8.3% sequentially to Rs3.3bn and EBITDA declined sequentially by 15.5% to Rs1.0bn (without amortization of MTM losses, EBITDA would have declined by 11.4%). Reported net profit stands at Rs1,332m as against Rs490m in Q2FY09, primarily due to a write-back of MTM losses of Rs840m on outstanding FCCBs.

■ Weak performance across all segments: Performance across all the segments was weak. GIS grew by a meagre 0.9%, whereas Engineering and EICT segments declined sequentially by 17.7% and 11.2%, respectively. Even EBIT margin declined in all the three segments (GIS (-) 230bps, Engineering (-) 440bps and EICT (-) 360bps). The weak performance was also visible in the company’s orderbook which declined sequentially by 2.5% to Rs15.5bn. A downfall in the orderbook was led by the Engineering segment which saw a sequential decline of 10.1% and the EICT segment which declined by 5.4%. However, orderbook in GIS still managed to grow by 4.4% sequentially.

■ Reversal of MTM losses on outstanding FCCBs as per revised AS11: Rolta has opted to write-back MTM forex losses (of Rs840m) provided earlier in the first nine months of the current financial year. From the current quarter, the company has started amortizing the whole MTM liability spread over the next 12 quarters. Per quarter amortization amount would be close to Rs120m.

■ Outlook and Rating: We expect Rolta’s revenue to grow at a CAGR of just 5.3%, whereas its earnings are expected to show a 5.5% de-growth over FY09-11. Our numbers factor in interest (net of tax) on its FCCB bonds. We believe that the recent acquisitions done by the company (outside India), while good in the long run, has diluted its attractiveness as domestic (India) growth story. We downgrade the stock to ‘Reduce’ at the target price of Rs82.

To see full report: ROLTA INDIA