>ROLTA INDIA (ICICI DIRECT)

Profitability growth mapping in place…

Rolta India Ltd reported Q3FY10 numbers that were in line with our expectations. The management sounded optimistic about the growth prospects of each of its business segments and emphasised that EGIS will remain as growth as well as profitability driver. The EDOS business is now seeing traction for high value work from various refineries. The EITS business is out of the woods and has reached stability.

In line results but strong growth & profitability outlook
Rolta reported in line Q3FY10 numbers with revenues at Rs 395 crore (5.1% QoQ growth), which was marginally below our expectations. However, on the operating front, it was in line with EBITDA margins at 37.8%. The PAT stood at Rs 67 crore with 7% QoQ growth. The management has highlighted that it will closely be able to meet the higher end of its constant currency guidance of 12- 15% for FY10E. On the profitability front, the management is
confident of scaling up its gross margin by 100-200 bps over the next two years on the back of IP revenues scaling up its contribution from 8% (YTDFY10) to 15% (FY12) and 20-25% FY13 and beyond.

Fund raising on the cards
The management is planning to raise US$100-120 million via QIP, going forward. This is to fund M&A opportunities like the recent OneGIS with consulting capabilities catering to telecom, utilities and government vertical and has inherent IP for mobile telecom.

Valuation
On the back of a strong order back log of Rs 1769 crore and growing share of IP contribution with strong growth in the EGIS segment, we believe the company will be easily able to grow at 16% CAGR over FY10E-FY12E. Also, IP contribution will aid margins adding to profitability.
We are revising our EPS estimate upwards and valuing the stock at 10x FY12 EPS. This gives us a price target of Rs 226 and STRONG BUY rating.

To read the full report: ROLTA INDIA