Tuesday, September 11, 2012


Rolta reported another quarter of revenue below expectation with margin ahead of expectation. The currency depreciation resulted in higher interest cost and MTM losses eroding bottom-line. As Rolta moves away from the services business to solution business, we continue to see likelihood of volatile earnings performance in H1FY13. The company has managed to honor its FCCB comittment by raising debt at 7.75% interest cost. High interest cost in a challenging demand environment makes the outlook for the company cautious. We retain our ‘Accumulate’ rating.

􀂄 Another quarter of low revenue but margins ahead: Rolta reported revenue growth of 4.4% QoQ to Rs4.45bn (PLe: Rs4.90bn, Cons: Rs4.60bn). EBITDA  margin expanded by 886bps QoQ to 54.6% (PLe: 45.9%, Cons:42.4%), driven by margin expansion in EGIS, EDOS and EICT segments by 977bps, 1557bps and 604bps QoQ, respectively. EPS de-grew by 29% QoQ to Rs2.97 (PLe: Rs4.22, Cons: Rs3.72), due to lower lower tax rate and stronger margin performance.

􀂄 Order book grew steadily in the quarter: Order book grew by 3.5% QoQ to Rs21.42bn, strongest growth in the last five quarters. EICT order book grew by 8.3% QoQ, the sharpest growth among all the segments, whereas EGIS and EDOS grew by 1.8% and 2.7% QoQ, respectively. Book-to-Bill (LTM) overall moved to high teens for the first time in the last five quarters. Q4FY12 book-tobill remains at 1.17, highest level since Q3FY11. The company’s decision to move away from low-end services business to solution offering could put additional pressure on order book. We expect order book to remain volatile.

􀂄 Other highlights: 1) FY13 Revenue growth guidance of 10-15% YoY 2) Total Capex in FY13: Rs500-2000m ) Tax Rate FY13: 18-20% 4) Total Debt: Rs23.5bn 5) Avg. interest rate on debt: 7.75% (Quarterly int. cost Rs420-450m @ Rs55/$)

􀂄 Valuation and Recommendation – ‘Accumulate’, target price of Rs85: We believe that the decline in the revenue is a matter of concern. We believe that a high interest cost in depreciating currency and a weak business environment could result in decline at the bottom-line. We retain our ‘Accumulate’ rating, with a target price of Rs85, 6x FY13e earnings estimates.

To read report in detail: ROLTA INDIA