In an interview to CNBC-TV18 KK Singh, CMD, Rolta India spoke about the financial performance of the company in Q2FY15 and the road ahead. He said that the company’s margins have seen improvement on the back of higher contribution from IP business. “Around 25-30 percent of Rolta India’s solution is IP led and we are looking to increase it to 50 percent plus in two years,” he added.
Meanwhile, Singh is hopeful of bagging Rs 50,000 crore defense order along with BEL, which is the major partner in the consortium for the order. The first bidder of this Rs 50000 crore defence order will get 70 percent and the second bidder will get 30 percent, he said.
He expects defence order to start flowing in next two years.
Below is the verbatim transcript of KK Singh's interview with Latha Venkatesh and Anuj Singhal on CNBC-TV18.
Latha: How come the margins improved?
A: We have margins which are dependent on the IP which goes into a quarter. So sometimes IP component is larger, which improves the margin. So the last quarter for example we had margins of about 33 percent, this quarter we had more IP going into our solutions and that improved the margins. So to that extent, this is little bit of volatile situation which will continue from quarter to quarter you will find that margins are in the range of mid-30, somewhere 33 percent, somewhere 37 percent and they will continue like that because right now, we have about 25-30 percent of solution as our IP.
As we go forward in next two years, we are planning that we should become almost 50 percent. Once that becomes 50 percent then the whole margins will also go up beyond 40 percent.
Latha: It is very difficult to forecast what Rolta might do. Two quarters ago your profits were Rs 138 crore then last quarter it fell to Rs 61 crore, this quarter again it is Rs 71 crore. How do you gauge, what is the normal run? You are not a seasonal business, you are not in sugar, you are in IT, why is it so volatile?
A: It is volatile again because of IP. The whole difference is that if it was just a service business, there will be no volatility and we used to be non-volatile three-four years back. So year-on-year (Y-o-Y), quarter-on-quarter (Q-o-Q) we would continue to do the same kind of pace which was normal but now once we sell IPs, it makes a lot of difference and that is where the whole difference is coming.
Anuj: I believe you and Bharat Electronics Limited (BEL) are in leading position for big projects from defence, some Rs 40,000-50,000 crore project?
A: Yes, this is a large project called Battlefield Management System, a very critical project for the modernisation of Indian army and it has been approved and so this will go into procurement and the consortium of BEL and ROLTA is something which has been rated very well.
Anuj: So how much order do you expect from that because I believe the overall order size is Rs 50,000 crore. How much will the first bidder, and how much will the second bidder get?
A: The first bidder will get 70 percent and the second bidder will get 30 percent. There will be two bidders into that.
Latha: For this entire Rs 50,000 crore it is just a 70:30 split?
A: Yes, just a 70:30 split. That will depend on the pricing. So technically the bidders have been accepted. So there were four consortiums, finally they are going to be two consortiums which will be left and these two consortiums will then have to do a POC, then they will have to do trials and after the trials and POC they will have to submit the price bid.
Latha: What is a POC?
A: Proof of Concept (POC). So they will have to really make the whole product and put it and then that product will be taken to deserts, mountains, forest and everywhere and then that will be tested. Once that is tested and accepted then the price will asked for.
Latha: How long is this process?
A: In the next one or one and half months the notification will be there that who are the two final consortium partners.
Latha: But there are only two people contending now you said. So either you are getting 30 or you are getting 70?
A: No, there are four but out of four finally two will be finally selected and then depending on their price finally which comes after POC they will be getting in the ratio of 30 and 70. That is the kind of thing.
Latha: What is the split between you and BEL, is there a major-minor partner?
A: Yes, BEL is the major partner, we are the minor partner. BEL is looking after all the hardware and we are looking after all the software.
Latha: So you will be what 25 percent?
A: Yes, we have about software worth about Rs 12,000 – 15,000 crore that we will be supplying. And then it is not only Rs 12,000 – 15,000 crore but there will be a lot of enhancements and upgrades and support which will be a continuous stream.
Latha: Over what period is this if it comes?
A: We expect that the order should start flowing in next 24 months or so and POC should start happening in next couple of months and then once it starts happening it will be a continuous process for next 5-6 years and then updates, upgrades which is a lifetime process of 20-25 years. So it is a very long process for software kind of people like us.
Anuj: You have been buying ROLTA shares from open market as well for last few years. is there any plans to delist the company, that is something that the buzz is going on in the market?
A: No, not exactly delisting. Why we have been buying is because there is an opportunity of 5 percent for promoters to increase their stake and we have tremendous confidence in the company. We believe we are one of the only companies in the world which is GIS, engineering and IT.
There is no other combination like that. So we have been in those market, we are a very IP centric company. Our IP is not only good in India but is also world established. So, we are very confident of what it is. So, we have been using that window of 5 percent and increasing our stake, that we have been doing.
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