Rolta

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Mapping the world

Penny Wise

Niren Shah / Mumbai August 13, 2007

A predominant domestic revenue base and a unique business mix makes Rolta worth a look. 

The future of the Indian information technology sector has been questioned many a time over for the past two quarters over its ability to sustain through the rubble created by the rising rupee. In such a scenario, companies with a significant proportion of revenues coming from the domestic market have a substantial advantage. Another set of gainers comprises of businesses attaining leadership positions in different domains by addressing niche markets. Rolta India is one such example, which has drawn an innovative roadmap for itself over the years in highly specialised segments such as geospatial information systems, engineering design and automation services. Apart from gaining specialisation in its domains, Rolta has also gained unparalleled client relationships which are difficult to replicate for other players. Around 60 per cent of its revenues come from domestic clients, so it is less dependent on the rupee-dollar relationship. To top it all, its mix of services and the extent of specialisation render it unique in the industry, not just in India but globally. 

Specialised verticals
Rolta’s business comprises of three main verticals: geospatial information systems (GIS), engineering design services (EDS) and eSolutions (See chart: Well designed). The GIS vertical provides information systems for a varied clientele such as local governments, engineering and oil and gas companies. In July this year, Rolta acquired Orion, a Canadian software company specialising in enterprise web-GIS solutions, which could help the company break ground in the logistics and retail sectors. It also has a 51:49 joint venture with Thales of France, which helps the company to provide solutions to defence, aerospace and security markets globally. 

On the engineering design front, the company has a track record of executing large contracts for engineering, procurement and construction (EPC) companies in the refinery, petrochemical and power sectors. The company has a 50:50 joint venture with Stone and Webster for its EDS business, which has specialised skills in the emerging nuclear power sector. Rolta also distributes software for ship design and plant design sourced from Intergraph, and provides service for the same in India. Further, it also undertakes design outsourcing projects for ship and plant design services. 

In the eSolutions vertical, Rolta acts as a service partner for Computer Associates across Europe, North America, Middle East and South Africa. It has now ventured into interactive game development services, and expects orders from gaming companies in Europe and the US. 

Plenty to come
In the past, Rolta has delivered robust growth one quarter after another. It’s profitability has been above average as compared to its peers – Rolta’s operating profit margins have been in excess of 40 per cent, while its net profit margins are over 20-22 per cent consistently. The company has also been able to raise its billing rates by over 20-45 per cent y-o-y across its services by providing higher value added services. 

Robust numbers are expected to continue going forward, as the company has given a guidance of growing its top line by about 35 per cent this year. 

ON A ROLL

Rs crore
FY07
FY08E
FY09E

Revenue
711.40
960.40
1249.00

Operating profit
296.90
394.00
500.00

OPM (%)
41.70
41.00
40.00

Net profit
172.60
230.50
300.00

NPM (%)
24.30
24.00
24.00

EPS (Rs)
21.50
28.70
37.40

P/E (x)
21.60
16.20
12.40

The guidance is substantiated by the order book position which stands at nearly Rs 1,600 crore, which is more than twice its FY07 (year ending June 2007) revenues. 

“With our Stone and Webster joint venture, we will be able to undertake business worth nearly 10-15 per cent of the total investments to be made in nuclear power projects – these investments are more than Rs 6,000 crore,” claims Hiranya Ashar, chief financial officer, Rolta, describing the potential opportunities. 

Rolta has also been active on the inorganic front. After the recent fundraising to the tune of $600 million (Rs 2,400 crore), the company acquired Orion of Canada. It still has a cash reserve of over Rs 800 crore, which it plans to utilise for further acquisitions. 

Valuation
In spite of its performance, Rolta has traditionally traded at a slight discount to its peers. However, the stock has been on a consistent uptrend over the past 12 months, quoting about three times from the levels of Rs 150 to Rs 465 level now. With a specialised business mix, strong order book position, and a foray into newer verticals, the stock appears cheap compared to its more generic service provider peers. At 16 times and 12 times estimated FY08 and FY09 earnings, Rolta still looks good at its current levels. 

Business-Standard