Aim to meet full year revenue guidance of 12%: Rolta India

The company is also actively participating in projects of smart cities worldwideKK Singh, CMD, Rolta India in an interview to CNBC-TV18 speaking about the business outlook going forward said the company is confident of meeting full year revenue growth guidance of 12 percent.Throwing more light on the demerger of the defence business, he said they were evaluating the valuation of the business and that it would be transferred to a wholly owned subsidiary. The formalities of the same would be completed this quarter. Defence business contributes 15 percent to total revenues, he said. He also spoke about the company's second quarter performance. Below is the transcript of KK Singh’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18. Ekta: Your revenues have been flat this quarter on a sequential basis and it is primarily because of your integration and enterprise IT solution segment. What happened there? A: The revenue is a little flat, but certainly, it is growing, it has grown almost 12 percent this year. So, our guidance was about 12 percent or so. So, I think we would be able to meet our guidance, or even do better in the next two quarters. But, in any case, as you can see, the earnings before interest, taxes, depreciation and amortisation (EBITDA) is growing better. The profit after tax (PAT) is growing better. So, both those counts are doing well and we are pretty sure that even the guidance for revenue we will meet. Anuj: If you can give us any timeline on the demerger of the defence business. If you could give us some kind of financials of that division and also by what time would you be completing the demerger? A: Frankly, we are putting it into a fully owned subsidy. So, this is a fully owned subsidiary which will be 100 percent owned by Rolta. So, it is not a demerger strictly from that angle. But, the steps are being taken. The approval from shareholders were received just about 15-20 days back and now the steps are being taken to see the evolution of the business. As soon as we are able to get the valuation done and then do other aspects, we will be able to transfer the business into the subsidiary. I think this whole process will finish in this quarter, the third quarter, the one which is continuing. So, by next quarter, we should be able to have a separate entity. Anuj: What is the rationale for that and what is the next step after that? A: The rationale is very simple. The regulatory environment for defence is very different than IT environment and when we have IT and defence into the same parent company, then it becomes difficult to stick to the government rules which are very different for both. So, we are putting this into a separate organisation which would be 100 percent owned by Rolta India limited. And then there are various possibilities as you go forward. For example, we can have strategic partner up to 49 percent. We can have foreign direct investment (FDI) up to 49 percent and there is a lot of interest in defence which we are seeing. Now, that we cannot have in the main company for example. And then there are in the main company, there are foreign institutional investors (FII) already holding almost 14-15 percent shares. So, anything there, if we bring any FDI that is capped along with the FII. Ekta: That is understood. Has anyone expressed interest already? A: We have not gone into the market. We have not said this, this is a long-term thing which I have just mentioned to you. So, it is not just something which we might be doing over the next 3-6 months or whatever. But fundamentally what we are saying is that business in defence is going to grow leaps and bounds and we are very much interested that we should be able to provide a platform for that so that it can grow very well. That is the whole purpose of doing that. And we are therefore taking steps and we will be ready to do that. Anuj: Any financials that you can give us in terms of how big is your defence business in terms of contribution to revenues and profit? A: it is about 15 percent or so of total revenues. So, it does go to that extent. And as we go forward, it will grow in a very big manner, because as you are seeing the defence, big contract of Rs 60,000 crore which is a battlefield management system (BMS) contract which we are the development agency (DA) with Bharat Electronics (BEL), this particular contract, when it will fructify, should give us almost Rs 10,000-15,000 crore worth of software revenues. So, Rs 10,000-15,000 crore software revenue can be a very large amount coming in ix to seven years. So, this can change the complexion of the company. Then we are going into for night vision devices, we are going for communication equipments, so in a very big manner we are doing a lot of expansion in defence. So, defence is becoming a very large business which needs a lot of attention and therefore we are taking it into separate company. Ekta: So, defence comes under the enterprise segment? A: So, defence is a vertical. We do these horizontally, the enterprise and these are horizontal. Ekta: So, what is your guidance on both the segments, maybe for the second half in terms of growth? A: As far as both these segments are concerned, I think we will be able to grow them as we have mentioned. Overall, in the year, we are looking for about 12 percent plus growth from the last year which we will be able to completely meet. And we are certainly looking that both of them will grow. And we are quite confident of that. Anuj: What about the deal pipeline? Last quarter, you won a couple of deals from the Middle-east. How is the next quarter looking? A: The quarter is looking very good. We have very large deals on which we are working right now all over the world, especially in big data analytics, there is a lot of traction and we are seeing a lot of big names which are coming to us because of the very specialised capabilities we have added into our software. So, that is something which is becoming large and of course, in homeland security, defence we are seeing a lot of business growing and coming in. So, the deal pipelines are good. I think it is almost Rs 20,000 crore worth of pipeline we have. So, we believe that we will be able to convert them into business as you go forward. Ekta: Are you participating in the Smart India initiative as well? A: Of course we are. In fact, we have done more than 100 projects of Smart Cities worldwide and we have a lot of intellectual property (IP) in that. And we took part in the Microsoft shows which just took place last couple of days and our programmes and our projects were put for display there. And similarly we are taking part in Smart India.