Buy Rolta India; target of Rs 191: Unicon Investment

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Buy Rolta India; target of Rs 191: Unicon Investment

Unicon Investment is bullish on Rolta India and has recommended buy rating on the stock with a target of Rs 191 in its August 16, 2011 research report.

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Unicon Investment is bullish on Rolta India and has recommended buy rating on the stock with a target of Rs 191 in its August 16, 2011 research report.

"Rolta India Ltd. (Rolta) has delivered a decent set of numbers for Q4FY11 (end June 2011). Top-line and EBITDA both fell slightly below our estimates. Rolta's net profits however were above expectations aided by lower than estimated depreciation costs."

"Rolta clocked in top-line revenue at INR 4.77 bn, up 4% sequentially and 23% on a YoY basis. EBITDA for the quarter came in at INR 1.93 bn, up 6% QoQ and 21% YoY. Both these figures were slightly below our estimates. EBITDA margin for the quarter came in at 40.6%, an improvement of 79 bps and 174 bps on a sequential and annual basis respectively. Net Profit at INR 885.86 mn grew by 5% and 28% on a QoQ and YoY basis respectively. Net profit was above our estimates, partly due to lower than expected depreciation expense and higher other income which came in at INR 123.6 mn. Rolta's flagship geospatial segment (EGDS) continued to grow at a healthy pace. The segment grew 5% sequentially. Rolta improved its margins from this segment by nearly 100 bps during the quarter to 53.7%. However, engineering design & automation continued to remain under pressure post the Shaw - Rolta (SWRL) JV exit. While the segment grew 2% sequentially, it declined by 4% on a YoY basis. We believe EDOS will take time to pickup as Rolta's employee strength within this segment was reduced substantially once the joint venture ended."

"Rolta's order-book stood at INR 20.5 bn as of date and is 80% executable over FY12. However, the management is cautious about the future given the uncertainty in the global markets. It has guided revenue growth in the range of 13% - 15% and 15% net profit growth in FY12. On the capital expenditure front, the company has guided around INR 2.5 bn. The management expects the company's effective tax rate to be around 16% - 18%. Revenue for FY11 grew 18% to INR 18.06 bn while EBITDA grew 25% to INR 7.2 bn. EBITDA margins improved 224 bps to 39.9% as high margin IP driven business contributed nearly 15% to total revenue. Net profit grew 57% to INR 4.02 bn. Profit margin for FY11 stood at 22.2%."

"Going forward, we expect wage hikes to increase pressure on margins in the near term. However, IP driven revenues could give margins the much needed boost as the industry encounters uncertain economic conditions in the coming future. In the coming 3 - 5 year period, revenue from IP business is expected to rise from the current 15% to nearly 25% - 30% range. With the company's strong order-book, dominant position in the geospatial imaging space and increasing IP driven business, we believe Rolta is available at cheap valuations relative to its peers. At the current market price, the stock is trading at 4.9x its FY12 earnings estimate. We maintain our Buy recommendation on this stock for a price target of INR 191," says Unicon Investment research report.

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