>ROLTA INDIA (MERRILL LYNCH)

Robust order intake; Buy for strong FY11e

■ Strong profit beat, sharp jump in order book; Buy
Rolta’s recurring 4Q PAT came in 27% higher than MLe, driven by 174bps margin expansion and 4% beat in revenues. More importantly Rolta reported 140% QoQ increase in new order intake in engineering services segment lead by domestic engineering clients compared to a 64% QoQ decline reported in previous quarter which was one of our key concerns. As per management order intake continued to be robust in July also. We raise FY10e earnings by 16% and FY11e by 38% driven by strong topline growth and uptick in margins. See further upside from Indian defence spend in the Thales JV post stable government elected in May. Upgrade the stock to Buy and raise PO to Rs200, at 12x FY11e in line with historical PE average, offering upside of 29%.

■ Order intake surprises; Strong FY11e likely now
Order intake for the company overall increased 31% QoQ as against decline of 24% in previous quarter and was driven by 140% increase in order intake in engineering services. During the call management indicated that order intake continues to be strong even in July. As most of these orders will be implemented from 2Q/3Q FY10 onwards, we expect FY11 to show a sharp rebound in sales and PAT. Estimate 21% yoy growth in FY11e revenues and 33% yoy growth in
FY11e PAT up from 13% earlier.

■ 1Q order intake critical for FY10 revenue guidance
Management has guided at 11-14% yoy growth in revenues for FY10 and EBITDA margins of 33-35%. We estimate 7% yoy growth in revenues in FY10E. Currently management has 75% visibility for FY10 revenues and 1Q order intake would be critical to achieve FY10 guidance, given implementation typically starts with a lag of 3-6 months. Key risk to our estimates is slower than expected recovery in domestic market and delay in ramp up of orders.

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