Feb 08, 2011, 06.28 PM IST | Source: Moneycontrol.com

Hold Rolta India; target of Rs 170: Anand Rathi Securities

Anand Rathi Securities has recommended hold rating on Rolta India with a target of Rs 170, in its February 1, 2011 research report.

Ashish Chaturmohta

Vice President Retail Research (Derivatives and Technical Desk)

Expertise : Equity - Technical

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Anand Rathi Securities has recommended hold rating on Rolta India with a target of Rs 170, in its February 1, 2011 research report.

Rolta India sold its 50% stake in Shaw-Rolta, effective 31 Dec 10, for USD 27.5 million and an additional USD 8m over the next two years. Rolta used to consolidate revenue of ~USD 3.5m a quarter to its EDA division. The absence of this, hereon, would dampen revenue and earnings growth going forward.

Rolta Indias US dollar revenue rose 3.4% qoq (to USD 98.5 million), while its margin was 27bps lower qoq in 2Q, as per our estimates. Its order book grew 1.1% qoq to Rs 19bn (including a ~9% decline in EDA due to the stake sell-off). Rolta saw 439 employees leave (including those lost due to the JV sell-off), decreasing the total base to 4,212. Billing rates were up 1.3% and 0.7% for GIS and EDA businesses respectively, while remaining flat for EICT. Rolta saw a one-off gain of Rs 761m on account of its JV stake sale.

We lower our FY11e/FY12e/FY13e earnings 5.3%/14.6%/10.2%, mainly on lower revenue and earnings due to the sell-off and salary hike from Jul 11. Our target price of Rs 170 implies a target multiple of 10x Mar 12e earnings. Our target PE is at 50% discount to the average PE of large-cap IT stocks (FY12e PE of 20x). Downside risk: equity dilution; upside risk: non-annuity based revenue-increases in clients capex programs. We lower our price target to Rs 170 from Rs 220, while maintaining our Hold rating, says Anand Rathi Securities research report.

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