rolta mata securities

8/8/2019 Rolta Mata Securities

1/18

Rolta India Ltd.

February.02 , 2009

Mata Securities India Pvt. Ltd. 1

MappingGrowth.. Outperformer

CMP :Rs. 89

Target

:Rs.

175

Rolta is a leading IT services player in three major business segments:

GeospatialServices,

Engineering

Design

and

eConsulting.

It

provides

integrated solutions for mapping, mechanical designing and ERPs for

defense,government,infrastructureandutilitiessector. Ithastiedupwith

globalgiantslikeThales,Stone&WebsterandCAforvarioustechnological

allianceandoffshoringcontracts.

INVESTMENTRATIONALE

MarketData52W(H/L) Rs.300/42

Market.Cap Rs.1376cr

FreeFloat 60%

PE(x) 4.7x

Avg.vol

(3M)

35

lakh

DifferentiatedBusinessModel

Business Leadership: Rolta is a leading solution provider inGIS and

Engineering Designbusiness in domesticmarkets. It has amarket

shareof70%&85%inGISandEDAbusiness,respectively.

Large

Order

Positions:

It

has

a

large

order

book

of

Rs.1,571cr

to

be

executed in next 12months and sufficiently large order pipeline of

Rs.4,000crspreadacrossvarioussegmentsensuringgrowthvisibility.

Vastofferings: Thecompanyhasawiderangeofproductsandservices

forDefenseandInfrastructureverticals. Ithastransformeditselffrom

beingaserviceprovidertointegratedsolutionsprovider.

RobustFinancialPerformance: Ithas registereda toplinegrowthof36%

CAGR during FY200508 on account of robust demand in defense

sectorandinfrastructureoffshoring.

Technological Edge: The company offers high end services in all its

businesssegment. Ithasatechnologicaledgepoweredbyitslargerich

depository

of

IPRs,

highly

skilled

&

experienced

manpower

and

domainexpertise.

Large Clientele: It has a monopolistic market share in GIS and

Infrastructuredesignbusiness. ItseliteclienteleincludeslikesofIndian

Defense, Reliance, British Telecom, ONGC, Saudi Telecom, Dubai

Municipality,CAandothers.

GrowthDrivers

AnalystRahulJain

912222616835

[email protected]

Head Research

RaviGupta

912265208816

[email protected]

StabilityofDefense&SecuritySegment: Increasedbudgetallocationfor

Defense (C4iSTAR) andHomeland Security in the current five year

planwouldensuresustainedgrowthinthedefensevertical.

GrowthinPower&Energysector : Largeinvestmentsannouncedinthe

powerand

energy

sector

(both

public

&

private)

would

create

robust

demandforplantdesignandplanningbusiness.

StrategicAlliances: ThebiggestUSPofthecompanyisitsallianceswith

globalgiants likeThalesandStone&Websterwhichwoulddrive its

growthinthecomingtime.

RecentAcquisitions: Series of acquisitions (WHC& Piocon) in the e

consulting space have strengthened its domain expertise inbusiness

intelligenceandisexpectedtodrivethegrowthmomentum.


2/18

Rolta India Ltd.

February.02 , 2009


FINANCIALPROJECTIONS

FY08 FY09P FY10P FY11P

Totalincome(Rs.cr) 1072.2 1481.4 1851.8 2259.4

EBIDTA(Rs.cr) 390.2 501.6 624.1 733.9

PAT(Rs.cr)# 230.6 295.4 376.9 457.4

EBIDTAMargin(%) 36.4% 33.9% 33.7% 32.5%

PATMargin(%) 21.5% 19.9% 20.4% 20.2%

ROCE(%) 15.2% 18.3% 21.5% 22.5%

EPS(Rs.) 14.3 18.3 23.4 28.4

BPS(Rs.) 73.6 71.9 87.1 106.4

DPS(Rs.) 3.0 4.0 4.5 5.0

#PAT:proformaforMTMprovisionsforFCCBs

PRICEVALUATION&OUTLOOK

MataResearchexpectshighgrowth inpast to continueasensuredbyhigh

orderbookandstrongexecutionrecord. ITbudgetintheinfrastructureand

defense(keyverticalsforthecompany)sectorarecompulsiveinnatureand

areinsulatedfromanyeconomicslowdowns.

Furthermore,thecompanysrichIPRsdepository,strongstrategicalliances

andspecializeddomainexpertisewouldhelpittomaintainitshighmargins

andwouldgiveitanedgeoveritspeers. Goingforward,largeorderbook,

IPled products and uniquebusinessmodel infrastructure design& IT

wouldensurestrongearningsvisibility;makingthegrowthprospectsofthe

companyquiteattractive.

Valuation: Thevaluationof the companys stock isdrivenby stabilityof

segments catered, expertise of the company,dominantmarket shares and

client relationships are reflected in the high proportion of the repeat

businessinthetotalincome.

Our target price for the stock is Rs.175,based on the relative valuation

method,discountingFY10EEPSofRs.23.43at7.5x. Currently,itistrading

onaneconomicalPERof4.8xonits12MtrailingEPSofRs.18.21. Thestock

wasspeculativelybeaten in themarketbasedonrumorsofpromoterspledging its

shares,whichwasvehementlyrefuted/deniedbythepromotersonelectronicmedia.

Thestockrecoveredsubstantiallyfromsuchlow,butscareremained.

Recommendation: MataResearch initiates itscoverageonRolta Indiawith

an Outperformer rating on the stockwith a target price ofRs.175 (96%

Upside)with12monthinvestmenthorizon.


3/18

Rolta India Ltd.


COMPANYPROFILE

LeadingplayerinGIS&EDA

Worldwidebusinesspresence

55%revenuefromdomestic

business

RoltaIndia

is

the

leading

IT

service

provider

and

developer

of

digital

mapbasedGeospatial services (GIS) fordefence, securityandutilities

sector. The company also specializes in providing ITengineering

services (EDA) for infrastructure companies. It also offers series of

customizedsolutionlikeCRM,BusinessIntelligenceandDataMiningas

anintegratedsolutiontoitsclients.

Rolta has established long term strategicbusiness alliancewithmany

globalgiantstoenhanceitscorecompetency. Itderivesabout55%ofits

revenue from domestic markets. Government (Defence), Municipal

Corporations,Oil&Gas,EngineeringandPowerutilitiesareitstargeted

verticals. Thecompanyaddressedinmorethan40countriesworldwide

aidedbyitsinternationalsubsidiaries(10).

MANAGEMENT:Vibrant&Innovative

Largehighskilledtechnical

workforce

Rolta India is Mumbai based midsize IT company promoted by

Technocrat Mr. Kamal Singh. Mr. Singh is a first generation

entrepreneur and has pioneered CAD/CAM/GIS services offerings in

domesticmarket. Over theyears, the companyhas transformedfrom

beingaserviceprovidertoanIntegratedSolutionsProvider.

It has amature and stable team of over 5000 professional. It also

managesRoltaacademywhichtrainsitsmanpowerinhouseandhelpit

todevelopspecializedskillsetandlowersattritionrate.

SHARE

HOLDING

PATTERN

(as

on

Dec

31,

2008)

Promoters,

40.3%

FII's, 35.3%

DFI's, 2.9%

Public, 16.6%Others, 5.0%

FIIincreasingtheirstakeinthe

company.

Totalshareequitycapitalofthecompanyis160.8cr,withafacevalueof

Rs.10pershare. Thepromotersholdsabout40%stakesinthecompany.

FIIshasbeen continuously increasing their stake in the company and

holdabout35.3%(asagainst23%ason31Dec2006). Equitycapitalis

expectedtofurtherdilutepostconversionofFCCBsdueinFY12. Total

equity would expand by 14.18% and outstanding number of shares

wouldincreaseto18.34cr(currently16.08cr).


4/18

Rolta India Ltd.


BUSINESSANALYSIS

Crossbusinesssynergyexist

Rolta is themarket leader inGIS and EDA segment forwell over a

decade.It

has

garnered

large

market

share

in

the

domestic

market

and

has undisputed leadership in the defense and homeland security

verticals. It has auniquebusinessmodel as it offers niche and high

valueaddedservices inthegeospatialandengineeringdesignspaceto

largeplayersintheOil&Gas,InfrastructureandDefencesectors.

ThethreemajorbusinesslinesGIS,EDAandeConsultinghavelarge

crosssynergyandofferunifiedrelevancetoitstargetedclients. Itslarge

varietyofhigh skilledexpertise inmappinganddesigninggives itan

edgeover itspeers. MataResearchexpectsthegrowthtoberobustin

comingyearsdrivenbygrowthofindividualbusinesssegmentandalso

fromopportunitiesemergedfromcombinedsolutionoffering.

GROWTHSTRATEGY

Focuses on high growth (Infrastructure) and stable (Defense)

verticals.

ContinuedfocusonIndian(toservegrowingdemand)market.

Offercomprehensiveanduniquesolutionsinthecateredsegmentsto

reducecompetition.

Maintainingitsedgebydeveloping/acquiringtechnologies.

Inhousetrainingtooptimizehighdomainexpertise.

Acquiringbusinesses toexpandgeographicallyand tomoveup the

valuechain.

REVENUEMIX

RevenuebyGeography RevenueDistribution(New/Repeat)

60% 59% 55%

14% 18%14%

26% 23% 31%

0%

20%

40%

60%

80%

100%

FY06 FY07 FY08

India Europe/ME/Others North America

33% 30% 33%

67% 70% 67%

0%

20%

40%

60%

80%

100%

FY06 FY07 FY08

New Projects Repeat Orders

LargedomesticmarketexposureGeographicalMix: Roltahaslargedomesticrevenuesbasewhichreduces

its currency risk, inaddition to lesserexposure toglobalslowdown in

terms of business growth. The contribution from N. America has

increased in recentyearsonaccountof coupleofacquisition in theE

Consultingspace. Ithasbeenabletoincreaseitsmarketshareoverseas

despitetoughcompetitionfromglobalgiantslikeESRI&Fugro.

High proportion of repeat order

businessProjectDistribution: About twothird of the revenues accrue from the

repeat orders from the existing clients. Repeat orders are in form of


5/18

Rolta India Ltd.


projects,maintenance,upgradesandupdates toexisting clients. High

proportionofrepeatbusinessprovidesvisibilityforrevenues,highlights

thelonglastingassociationwiththeclientsandreflectsthehighquality

ofproducts

and

services

the

company

offers.

SegmentalContribution

The companys revenue can be broadly classified into three main

businessstreams:

a)GIS b)EDA c)EICT

SalesMixFY08 OperatingProfitMixFY08

GIS, 49%

EDA, 32%

EICT, 18%

GIS

54%EDA

35%

EICT

11%

a) GeospatialInformationServicesorGIS:

Expertisetoexecutelarge

projects

RoltaisoneoftheleadingproviderofmapbasedGISservicesand

Photogrammetry solutions provider to the defense, security,

utilities and infrastructure sectors. It has executed largeprojects

like

creating

digital

networks

for

telecom,

power,

gas

and

utilities

companies. Ithasuseditshighendtechnologytofacilitatecarrying

out townplanningandcitymodeling. Thecompanyhasahighly

skilledmanpower of 2,236professionalsworking onGISprojects

spread over 25 countries. It is well placed for deployment,

customization, integrationandproviding lifecycle supportacross

theremotestoflocationsinIndia.

Rolta has acquired technology through longstanding strategic

alliances with global leaders in the GIS business (Intergraph,

Thales). These alliances enables it for ready technical pre

qualification tobid for large projects and request for proposals.

These alliances, efficient operational resources and high

technologicalstrength

have

helped

the

company

to

bag

multi

milliondollarprojectsfromacrosstheglobe.

Marketshareofover70%in

GIS

Rolta ismarket leader inGISspace in thedomesticmarketwitha

marketshareofover70% (orderbookpositionofRs.689.2cr tobe

executed in 1215months). Theblendedbilling rate ($20.9 per

hour) in the segment is increasingwith increasing proportion of

high end services. It enjoys highEBIDTAmargins of 40%, as it

providesendtoendintegratedsolutions(GeoSpatialFusion).


6/18

Rolta India Ltd.


Expertisetoexecutelargeprojects

b) EngineeringDesignandAutomation(EDAorEDS):

Rolta provides Design Automation Services to various sectors

suchas

Power,

Oil

&

Gas

and

Petrochemical

sectors.

It

has

emergedasadominantplayerwithamarketshareofover85%in

India. Ithas strengthofprovidinghighendengineering services

under its concept to completion model. Services include

CAD/CAM/PDAprocessestodesignplants.

ThecompanyhasjoinedhandwithglobalgiantStone&Webster

(S&WL) Inc,USA tomoveup thevalue chain in the engineering

designtechnology. EvenlyheldJVwithS&WLhasgivencompany

access to latters technological experienceof 115years,numerous

patentsandgatewaytonuclearpowersector.

OrderbookofaboveRs.500crIt has executed prestigious projects for its global clients and has

large

orders

worth

Rs.507cr

in

its

kitty.

It

has

large

opportunities

as

many companies (private & government) has announced major

expansion plans in refinery, power, nuclear and telecom sectors.

Typically,plantdesign (engineering) costsapproximately35%of

totalprojectcost. Consideringthelargeproposedinvestments,technical

allianceandleadershipposition,thecompanyisexpectedtomaintainthe

growthmomentuminthesegment.

AlliancewithComputerAssociates

DevelopedexpertiseinERP&

BusinessAnalyticswithrecurrent

acquisitions

c) EnterpriseInformation&CommunicationsTechnology:

Rolta provides esecurity implementation services, rapid

application development and business analytics solutions to its

customersworldwide. The companyhas analliancewith a firm

ComputerAssociates

(CA)

atechnology

leader

in

network

security

domain. The company has evolved from a mere support &

maintenanceenablertofullfledgednetworksecurityservicegroup.

Thecompanyhasstrengtheneditspositioninthesegmentthrough

recurrent acquisitions toboost technical expertise, readybusiness

and larger geographical foothold. Post the acquisition of these

consulting companies (Orion,Broech,WhittmanHart andPiocon

Technology),Thecompanyhasaddedmanytechnicaltoolssuchas

Multipointdataaccess,dataminingandbusinessintelligencetoits

widespectrumofservices/solutionsofferings.

Highbillingrateof$115permanly

hours.

Thesegmentcontribution in total revenuehas increased in recent

years

and

has

reached

18%

(as

against

5%

in

FY05)

at

Rs.193cr

as

on

yearendingJun08. Itisfocusingonhighendconsultingandearns

high billing revenues of $115 per manly hours. Mata Research

expectsgoingforward,thecompanyisexpectedtosustainupbeatgrowth

in the segment due to increased geographical & technical positions,

positive industry dynamics for infrastructure outsourcing and inter

segmentalsynergy.


7/18

Rolta India Ltd.


COMPANYGROUPSTRUCTURE(Subsidiaries)

STRATEGICALLIANCES&JOINTVENTURE

Roltasbiggestattribute tosuccess itsability topartner (alliances)with

key global players in various domains, thus offering it with ready

market and technology. The company enters a perpetual exclusive

allianceforselectiveservicesandtargetmarkets.

JVwith

global

giant

Stone

&

Webster

Stone & Webster (JV 50:50): The equally held Joint Venture has

executed projects for petroleum & refineries and is providing

engineeringdesign

services

for

global

projects

(infrastructure

offshoring)ofShawGroup.

Stone&Webster isapartofShawgroupwith115+yearexperience in

EngineeringDesignandhasexpertiseinsettingupNuclearpowerplant

projects. TheJVhasempoweredRoltawithcrucialprocesstechnology

knowhowandhasexecutedprojectsforReliance,Essar,IPCLandIOC

inIndia.

RoltaThales(JV51:49): ThecompanyhasJVwithFrenchdefenceand

aerospace leaderThales. JVwithThaleswouldprovidetechnologyfor

developing state of the art C4ISTAR information system to service

Indian and international civil&militarydefence operations. Rolta is

leadingsolution

provider

to

Indian

defense

sector

and

expects

large

uptickintherevenuecontributionfromthisventure.

AgreementwithCAfordata

security&networkmanagement

CA (ComputerAssociates): Rolta India has entered into a definitive

agreementwithCAtoprovideonsite&offsiteresourcestoservice full

spectrumoflattersdatasecurityandnetworkmanagement.

Integraph: Rolta has established long term strategic business

partnership with Integraph to obtain core technology in high end

mapping andGIS solutions. The company has a perpetual exclusive

Rolta

SaudiArab

(75%)

Rolta

MiddleEast

(UAE100%)

RoltaInternational

(USA100%)

Rolta

Canada

100%

Rolta

Thales

(51%)

Orion

Tech

100%

RoltaUKLtd.

(UK100%)

ROLTA INDIA

RoltaAsia

Pacific

100%

TUSC

(100%) Benelux

Netherlands

100%

Deutchland

(100%)


8/18

Rolta India Ltd.


partnershipcontractwithIntegraphinIndia.

RECENTACQUISITIONS

Acquiredcompaniesto

strengthenitseConsulting

business.

Ithasastrategytoacquirecompanieshavingasynergywithitslineof

businesstomoveupthevaluechain. Itfocusesontargetswithcutting

edgeIPRs,establishedtrackrecord,anddomainexpertise. Somerecent

acquisitionsbythecompanyare:

OrionTechnology(July07): ItisaCanadabasedcompanyspecializing

in enterprise web GIS solutions. The acquisition helped Rolta to

distinctivelypositionitselfinspatialintegrationandconsulting.

Broech (TUSC) (Jan08): US based company engaged in highend

consulting for ERP applications, FusionMiddlewarebased onOracle

Applications. Acquisition has facilitated Rolta with data mining,

visualization

and

intant

SOA

capabilities.

WhittmanHartConsulting (July08): BygettingholdonWHC,Rolta

haspositioneditselfstrategicallyinthehighendbusinessconsulting.

PioconTechnology(Dec08): ThisUSbasedcompanyaddressescritical

operationalneedsofOil&Gasrefineries. Roltahasgainedasignificant

clientbase,highskilledworkforce,uniquemethodologiesandprofitable

revenuestream.

STRONGORDERBOOKPOSITION

Orderpipeline

of

over

Rs.40billion.

Rolta haswidened its spectrum of offeringby partnering the global

giants (to get access of technology) and acquiring companies in the

overseasmarkets. The companyhasbeen successfullyaddingup its

orderpipelinedespitehighsalesgrowth recorded inpast threeyears.

Its total order pipeline is approx.Rs.40billion tobe executed in next

fouryears.

9811106

13881514

1571

404447

570

292367

150

400

650

900

1150

1400

1650

Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09

Rs.

inCr

Order Book New orders during the Qtr

Currentorderpositionensures

toplinegrowthof40%CAGR

overFY0810

The runrate for fresh order intake has slowed down in last two

quarters. But the total orderbookposition ofRs.1571cr ensures fair

earningvisibilityandagrowthofabout32%CAGRoverFY08FY10.


9/18

Rolta India Ltd.


PRODUCTSOFFERING

Segment Vertical Product/Service/Solution

Infrastructure Geospatial/GISConsulting

Telecom HomelandSecurity&Communications

Government HighendPhotogrammetry&Imaging

DefenseUtilities C4ISTAR

Geospatial/

GISLandscape

GeospatialFusion

ConceptualEngineering&Design

ProjectManagement&Procurement

ConstructionManagement

Operations&Maintenance

TechnologyServicesConsulting

Engineering&

DesignServices

Oil&Gas

Petrochemical

Refining

ConventionalPower

NuclearPower

RoltaSpecializedServicesforAsBuilt

RoltaeFusion

BusinessIntelligence

EnterpriseApplications ERP

DataSecurity&ServiceManagementEICT

Healthcare&Finance

Communication&

Utilities

Defense&Government

ConsultingServices

EnrichingBillingRates

Movingupthevaluechainand

hencerising

billing

rates

The company has consistently strengthened the competencies of its

professionals and quality of its intellectual property tomove up the

valuechain,toaddresschallengingneedsofcustomers.

Theincreased

focus

on

providing

end

to

end

solutions

and

deployment

ofhighendserviceshasaidedthecompanytoincreaseitsbillingrates.

Theblended averagebilling rates has increased in all threebusiness

segments.

EICTor eConsultingbusinesshas seen significantjump in thebilling

rateonaccountofintroductionoforaclebased,SOA(ServiceOriented

Architecture)andERPservicesbythecompany.

HourlyBillingRate EffortMix

19.9

115.5

19.519.4

24.1 27.522.2

85.484.9

10

30

50

70

90

110

FY 06 FY 07 FY 08

B

illing

R

ate

($

per

hou

r)

GIS EDA EICT

13% 14%21%

87% 86%79%

0%

20%

40%

60%

80%

100%

FY 06 FY 07 FY 08

Onsite Offsite


10/18

Rolta India Ltd.


Higheronsitedeploymentof

employeestoimprovebillings

Thehighbillingratehasbeenachievedastheeffortmixofthecompany

has been favoring towards onsite deployment of employees. The

employeedeploymentonsitehasincreasedfrom13%inFY06to21%in

FY08.The

onsite

strength

has

increased

after

consolidating

with

its

acquisitionmadebyitsoverseassubsidiaries.

CLIENTPROFILE&CONCENTRATION

Lowclientconcentrationrisk

Highproportionof repeatbusiness

The company has been serving large Industrial Corporations and

Government Bodies across the globe. The company has extensive

relationshipsfromitsclientsasreflectedfromhighproportionofrepeat

businessorders(67%)intotalrevenues.

The companysbusiness is characterizedbyprojectbasedCapex and

annuitybased revenuemodel. It services its clients through its own

independent solutions/products aswell as in combinationwith third

partysolutions.

It

has

alow

client

concentration

risk

with

its

Top

5clients

andTop10clientscontributing22.1%and28.6%oftotalrevenuesearned.

21% 20%22%

27% 26%29%

0%

5%

10%

15%

20%

25%

30%

35%

FY 06 FY 07 FY 08

ShareinRevenues

Top 5 Clients Top 10 Clients

Followingarefewofthetopclientsindifferentbusinesssegments:

BUSINESSSEGMENT MAJORBUSINESSCLIENTS

GISAirportAuthorityIndia,BritishTelecom,BSNL,CESC,Civilaviation(Abu

Dhabi),FijiTelecom,GeorgioPower,IndianMinistryofDefense,Mumbai

Police,NationalGrid,ONGC,QatarWater,SaudiTelecom,Verizon.

EDA3M,ABB,AlsthomPower,BASF,Bayer,BHEL,Essar,ExxonMobil,HPCL,

L&T,Petrobras,Reliance,RollsRoyce,SaudiAramco,Shell,Siemens,Tata

Chemicals,Thermax,ToyoEngineering,Webasto,YorkInternational,etc.

ECITAmerican Express,Deloitte, Eurobank, Eximbank, Fujitsu,Hitachi,RBI,

SaudiElectricity, Schneider, SITA, State ofAlabama, Suntrust,TDBank,

TimeWarnerTelecom,UnitedAirlines,Vodafone,WalMartetc.

Source: Company


11/18

Rolta India Ltd.


INDUSTRYANALYSIS

Rolta India Ltd. largely serves four verticals viz. Defense (including

security),

Government,

Infrastructure

and

Others.

The

increased

spends

intheabovesectorhaswidenedtheIndustrysize.

GeoSpatialInformationServices

Defense sector forms major part (approx 12%) of the companys

revenues. Services in these sectors include digital mapping,

photogrammetry andC4ISTAR (ERP solution formilitary). With the

Government spend in the defense increasing at a brisk pace the

opportunities for service provider have increased significantly. IT

budgetsforms45%oftotalspendbyDefense(reached1trillionmarkin

2008). Roltabeing thepreferredvendor for IndianDefense is likely to

benefitfromincreasedfocusondefenseandhomelandsecurity.

Also,

National

Map

Policy

(2005)

has

opened

opportunities

by

allowing

access to National Topographic Database of the Survey of India to

promoteuseofgeospatialknowledgeand intelligence. Thepolicyhas

envisagedanideatoclassifytheOpenSeriesMap(OSM)toutilizethem

forthedevelopmentactivites(Townplanning&plantdesigning).

EngineeringServicesOutsourcing(ESO):NextLeapofSuccess

Year ESOOpportunity

2007 $4bn

2020 $50bn

Indiasskillinthesoftwareservicesoutsourcingspaceinanestablished

fact,butofflateIndiaisemergingasapotentialoutsourcingdestination

intheengineeringdesignsegment. IngeneralITInfrastructurespends

arecompulsiveinnatureandarelargelyservedonsitebutarecentstudy

conductedby Booz,Allen&Hamilton andNASSCOM has indicated

highpotential

for

Indian

Engineering

Outsourcing.

The

study

highlights the strength of developing countries like Indiawith huge

talent pool, availability of critical resources and that too in a cost

effectivemanner. ThestudyexpectsESOtogrowataCAGRof25%to

reach$50bnin2020from$4bninFY07(Source: BoozAllen&HamiltonandNASSCOM).

INFRASTRUCTUREBOOM

EngineeringDesignAutomationbusinesshashugepotentialasreflected

from huge capacity expansion in the Oil & Gas and Power Sector.

EngineeringDesign forms4 to5%of the totalproject cost. Thehuge

creationofinfrastructureplannedbyGovtineleventhplanwouldform

largedomestic

market

opportunity.

Refiningcapacitytogrowfrom146MMTPA(present)to212MMTPA

by2012.

Powergeneration capacity in India to increase from 115,000MW to

285,000MWby2016.

AdditionalopportunityinNuclearpower(40,000MWplanby2020).

Source: GovernmentofIndia.


12/18

Rolta India Ltd.


STRATEGICANALYSIS

In

the

current

challenging

environment

it

is

important

to

analyze

a

companyonSWOTbasis. Roltawith integratedbusinessmodel, large

orderbook, preferred vendor status, domain expertise and high end

technology&IPRarecapabletoovercometoughtimes.

4points Strength

LargeorderbookofRs.1567crandanorderpipelineofRs.4000cr.

PreferredVendor statuswith largeGovernment and Infrastructure

companies.

Technical Alliancewith global giants such as Thales and Stone &

Websterstoaddsignificantbiddingstrength.

Consolidation

with

the

acquired

companies

(TUSC,

Broech,

Piocon

&

WHC)hasaddedtodomainexpertise.

Highbillingratesensuringhighoperatingmargins.

4points Weakness

Low inhouse technology or over dependence on technological

alliances.

LargeexposuretoGovernmentsectorhasleadtohighdebtordays.

Lowannuityrevenuesintotalsales.

4points Opportunities

LargecapacityexpansionindomesticPowerandEnergysector.

Implementation of Nuclear power project in India holds huge

potential.

Deployment ofGeospatial eFusion (Sensor to shooter) solution in

DefensesectorwouldgivebigthrusttoGISsegment.

3points Threats

Increased competition from local and international players post

announcementofNationalMapPolicy.

Challenges to retain high skilled talent in a highly competitive

environment.

Technological

Obsolesce

as

achieving

and

sustaining

high

growth

dependsonabilitytoadoptemergingtechnologies.

AverageSWOTScore#:4points

#ScoringRangeis15(higherscoreisbetter)


13/18

Rolta India Ltd.


FINANCIALPERFORMANCE

Rolta India is one of themost consistent performers in the Indian IT

spacewith

adifferentiated

business

model.

The

company

is

capitalizing

onitsmarketleadership,strongorderbookandnicheexpertise.

Mappinghighrevenuegrowth

Roltaisoperatinginthreebusinessverticalsandhasamarketleadership

inGIS (market share 70%) and Engineering designbusiness (market

share 85%). The company revenue grew at a CAGR of 36% during

FY04FY08. Thegrowthmomentumpickedup inrecentyearsasmost

ofitsJVandacquisitionshavestartedbearingthefruits.

ToplinetogrowataCAGRof

28%during

FY08

10.

ThecompanyisservingverticalslikeGovernment,Defense,Utilitiesand

Healthcarewhicharelesssensitivetoeconomicslowdownorslowdown

fears. It has high orderbook pipeline (Rs.40bn) to ensure a growth

visibilityof

28%

CAGR

over

next

three

years.

Thecompanyderiveslargechunkof itsrevenuefromdomesticmarket

(55%)wherethethrustoninfrastructureprojectswouldprovideenough

opportunities. Also, thecompanyhasnot receivedanycancellation in

order from itsmajor clients. Mata Research expects Roltas consulting

businesswouldactasafrontwheelofitsgrowthvehicleincomingyears.

415535

711

1072

1481

1852

2259

0

500

1000

1500

2000

2500

FY05 FY-06 FY-07 FY-08 FY09E FY10E FY11E

Sales(Rs.cr)

Marginstoremainhigh

OperatingMarginstostabilizein

3234%range

The company offers high value added solutions in the GIS and

EngineeringDesignsegment. Theoperatingmarginsinthesesegments

arehighat58%and39%,respectively. But,overallmarginshavebeen

dilutedwithdecrease in the contributionofGIS segment from62% in

FY06to

49%

in

FY08.

Also,

the

margins

in

the

consulting

business

are

lowdue to itshighemployeecostand largeonsiteexpenditure. Mata

Research expects increased utilization level, lower attrition level and

lowerhikeinemployeecostwouldhelpitsustainitsoperatingmargin.

NetProfitmarginwashighinarangeof21%to24%duringFY06FY08.

Going forward, we expect slower cash conversion and dilution in

revenuemixwouldslatedownitsprofitabilityby100150bps.


14/18

Rolta India Ltd.


24.3%

21.5%20.4% 20.2%

41.1%

32.5%

21.7%19.9%

41.1%

33.7%33.9%36.4%

15%

20%

25%

30%

35%

40%

45%

FY06 FY07 FY08 FY09E FY10E FY11E

PAT Margin EBIDTA Margin

HighDebtorOutstandingDays

The high exposure in the Government vertical has resulted in high

debtoroutstandingdays. Thoughthedebtorcycleislong,thequalityof

receivable is high and secured. It has considerably improved its

receivabledaysfrom316daysinFY05to150daysinFY08. Thiswould

further improveonaccountof increasedproportionof consultingand

onsitebusiness.

Debtordaysimprovingatabrisk

pace.

Debtors Days

251

198

150141 136 127

0

50

100

150

200

250

300

FY06 FY07 FY08 FY09E FY10E FY11E

Adequateliquidityandlowgearingposition

OverallGearinglowat0.59x.

Thecompanyhasacomfortableliquidityasindicatedbyitscurrentratio

of2.78xasonJune30,2008. Ithas lowsolvencyriskasreflected in its

overall gearing of 0.59x as onMarch 31, 2008. The only debt in the

booksareunconvertedzerocouponFCCBsaggregatingRs.600crduefor

repayment in FY12. FCCBs are convertible at Rs.368 per share and

carryanaggregatepremiumof39%incaseonnonconversion.

The company has been following prudent accounting policy and is

providing foryearlypremiumasacontingencymeasure for theyields

onFCCBsasmightpayableat the timeof redemption in caseof their

nonconversion.


15/18

Rolta India Ltd.


BoomingFirstHalf(H1FY09)

Robustfirsthalfgrowth

Thecompanyhascontinueditsrobustgrowthmomentuminfirsthalfof

currentfiscal

ending

Jun09.

Total

income

grew

by

53%

backed

by

huge

tractionaddedbyEICTsegment. EICToreConsultingbusinessgrewby

about 248% supported by series of acquisition and added business

expertiseintheERPdomain.

Business mix shifting towards

consultingbusiness

The business mix has been getting skewed in favour of booming

consultingbusiness,with itscontribution increased to27% in firsthalf

from 18% for FY08. Thebilling rate has improvedwith increasing

contribution of integrated solutionbased offering. The company has

been able to add up Rs.78cr in the order book apart from burning

Rs.708crinfirsthalf.

Theoperatingmarginshasdippeddue todilution in the revenuemix

andincreased

onsite

deployment.

It

has

charged

Rs.84.01cr

on

account

oftranslationlossesonFCCBsduetorupeedepreciation. Thecompany

has also expressed its interest tobuyback some portion of its FCCBs

(tradingatbigdiscount)byitsunutilizedcash&equivalentsofRs.252cr

ason31stDec.,08.

H1FY09 H1FY08 Growth

TotalIncome 708.1 462.7 53.0%

EBIDTA 244.5 176.7 38.3%

Depreciation 79.1 65.1 21.6%

PAT 84.4 114.0 (25.9)%

PAT(w/oexceptionalitem)# 168.1 114.0 47.4%

EBIDTAMargin 34.5% 38.2%

PATMargin 11.9% 24.6%

PATMargin(w/oexcpitem) 23.7% 24.6%

*figuresinRs.crunlessotherwisestated

#MTMlosses(translation)onreinstatementofFCCBliabilities


16/18

Rolta India Ltd.


STOCKVALUATION&RECOMMENDATIONS

Rolta,with

its

acquisition

and

alliance

strategy,

has

been

widening

the

service offering and geographical reach & opportunities. It has

diversified business model and healthy client relationships. The

company has technological edge in its business domain and enjoys

leadershipstatuswithadominantmarketshare.

MataResearchexpectsfollowingfactorstodrivethegrowthprospectsof

thecompanyincomingquarters:

LiberalisedNationalMapPolicy.

GrowingdemandforGISintownplanningandutilities

management.

LargeopportunitiesinITInfrastructureOutsourcing.

Largecapacity

expansion

in

the

Power

&

Energy

sector.

Swellingdefensebudgets.

Increasedimportanceofhomelandsafety.

HugedemandforData&NetworkSecurity.

HugepotentialdemandinviewofCountrysNuclearPowerplans.

AddedarmorypostacquisitionofcompaniesineConsulting

segment.

Relativefairprice:Rs.175RelativeValuation: Thestock iscurrently tradingatacompellingPE

multipleof4.7xon its12M trailingEPSof18.21. OurTargetPriceof

Rs.175discounts7.5xonitsFY10EEPSofRs.23.43.

DCFtargetprice:Rs.220DCF

Valuation:

Based

on

the

DCF

methodology

the

fair

price

of

the

Stock is Rs.221. The high valuation is due to internally funding of

CAPEX, improving working capital position and strong earning

visibility.

InitiatingCoveragewithan

Outperformerrating.

Conservatively,MataResearchhasconsideredmoderategrowthandstable

marginsincomingquarters. MataResearchinitiatecoverageonRolta

IndiaLtd.withan Outperformerratingwithoneyear targetpriceof

Rs.175,withaninvestmentupsideof100%.


17/18

Rolta India Ltd.


CONSOLIDATEDNUMBERSOperationalPerformance BalancesheetParticulars FY 05 FY 06 FY 07 FY08 YrEndingMar.31 FY 05 FY 06 FY 07 FY08

(Rs.cr)

Assets

(Rs.

cr)

NetSales 414.6 534.9 711.4 1072.2 FixedAssets 297.0 369.8 459.2 618.7

OtherIncome 2.1 2.8 0.0 0.0 Investments 6.3 0.0 112.4 97.6

TotalIncome 416.7 537.7 711.4 1072.2 NCA/NWC 387.0 273.1 379.7 948.0

CostofSales 262.5 316.8 419.0 682.0 CurrentAssets 489.5 398.9 512.8 1125.1

PBDILT 154.2 220.9 292.4 390.2 CurrentLiabilities 102.5 125.9 133.1 177.1

Depreciation 48.9 74.7 101.9 138.3 TotalCap.Empld 690.3 642.9 951.2 1664.3

PBILT 105.4 146.2 190.5 251.9 Liabilities

Financecharges 11.6 14.7 0.7 0.0 ShareCapital 63.7 63.7 79.9 80.1

Op.ProfitbfrTax 93.8 131.5 189.8 251.9 Reserves 391.8 392.9 861.5 966.5

Extraord.Items 4.2 -0.1 4.5 16.5 Miscexpw/o 0.0 0.0 0.0 0.0

PBT 98.0 131.4 194.3 268.5 NetWorth 455.4 456.6 941.4 1046.6

Less:Tax 8.6 14.7 21.7 38.8 TermLiabilities 234.9 186.3 9.8 617.7

PAT 89.4 116.7 172.6 229.7 TotalCap.Empld 690.3 642.9 951.2 1664.3

KeyRatios CashflowsParticulars FY 05 FY 06 FY 07 FY08 YrEndingMar.31 FY 05 FY 06 FY 07 FY08

ProfitAfterTax 89.4 116.7 172.6 230.6

GrowthinTotalInc. 17% 29% 32% 51% Depreciation 48.9 74.7 101.9 138.3

GrowthinPAT 43% 31% 48% 34% ChangeinWC 96.2 51.0 18.1 6.8

PBDITMargin 37.0% 41.1% 41.1% 36.4% Opg.CashFlow 234.5 140.4 256.5 362.1

PATMargin 21.5% 21.7% 24.3% 21.5% Inc/DecGro.Block 180.1 40.9 158.9 230.0

ROCE 17.2% 19.1% 15.4% 15.2% Inc/DecinCWIP 5.7 26.0 78.1 26.6

RONW 19.6% 16.7% 17.4% 20.7% Inc/DecinInv. 6.3 112.4 14.8 184.0

Gearing(x) 0.4 0.0 0.6 0.6 C.F.Investing 179.4 97.5 222.2 440.6

OverallGearing(x) 0.4 0.0 0.6 0.6 Dividendpaid 22.3 32.0 40.1 49.8

InterestCover(x) 910% 996% 2574% - TaxPayment 3.1 4.5 6.8 8.6

CurrentRatio(x) 3.2 3.9 6.1 2.8 Inc.inT.Liab. 48.6 176.5 607.9 76.1

Inc.inS.Capital 0.0 392.5 11.0 46.2

SalesPerShare* 65.4 67.3 88.8 66.6 C.F.Financing 74.0 179.6 550.1 28.5

EPS(Rs.)* 14.0 14.6 21.5 14.3 Op.CashBalance 50.8 33.1 88.7 639.0

DPS(Rs.)* 3.5 4.0 5.0 3.1 Cl..CashBalance 33.1 88.7 639.0 259.8

*BonusIssue1:1 (Rs.cr)

FinancialProjections

OperationalPerformance BalancesheetParticulars FY 08A FY09P FY10P FY11P YrEndingMar.31 FY 08A FY09P FY10P FY11P

(Rs.cr) Assets (Rs.cr)

NetSales 1072.2 1481.4 1851.8 2259.4 FixedAssets 618.7 1022.2 800.6 824.9

OtherIncome 0.0 0.0 0.0 0.0 Investments 97.6 281.6 331.6 431.6

TotalIncome 1072.2 1481.4 1851.8 2259.4 NCA/NWC 948.0 575.6 769.3 939.3

CostofSales 682.0 979.8 1227.7 1525.5 CurrentAssets 1125.1 899.1 1132.8 1342.8

PBDILT 390.2 501.6 624.1 733.9 CurrentLiabilities 177.1 323.5 363.5 403.5

Depreciation

138.3

176.6

210.7

236.9

Total

Cap.

Empld

1664.3

1879.5

1901.5

2195.9

PBILT 251.9 325.1 413.4 497.0 Liabilities

Financecharges 0.0 0.0 0.0 0.0 ShareCapital 80.1 160.9 160.9 160.9

Op.ProfitbfrTax 251.9 325.1 413.4 497.0 Reserves 966.5 1024.8 1196.7 1441.0

Extraord.Items 16.5 20.5 27.5 38.0 MiscExp.Notw/o 0.0 0.0 200.0 200.0

PBT 268.5 345.5 440.8 535.0 NetWorth 1046.6 1185.7 1157.6 1401.9

Less:Tax 38.8 50.1 63.9 77.6 TermLiabilities 617.7 693.8 743.9 794.1

PAT# 229.7 295.4 376.9 457.4 TotalCap.Empld 1664.3 1879.5 1901.5 2195.9

#PAT:proformaforMTMprovisionsforFCCBs


18/18

Rolta India Ltd.


ProjectedRatios ProjectedCashFlowsParticulars FY 08A FY09P FY10P FY11P YrEndingMar.31 FY08A FY09P FY10P FY11P

ProfitAfterTax 230.6 295.4 376.9 457.4

GrowthinToInc. 51% 38% 25% 22% Depreciation 138.3 176.6 210.7 236.9

GrowthinPAT 34% 28% 28% 21% ChangeinWC 6.8 128.0 77.0 92.0

PBDITMargin 36.4% 33.9% 33.7% 32.5% Opg.CashFlow 362.1 344.0 510.6 602.3

PATMargin 21.5% 19.9% 20.4% 20.2% Inc/DecGro.Block 230.0 300.0 250.0 200.0

ROCE 15.2% 18.3% 21.5% 22.5% Inc/(DecinCWIP 26.6 145.0 15.0 0.0

RONW 20.7% 25.2% 29.5% 29.3% Inc/DecinInv. 184.0 50.0 100.0 150.0

Gearing(x) 0.6 0.6 0.6 0.5 C.F.Investing 440.6 205.0 335.0 350.0

OverallGearing 0.6 0.6 0.6 0.5 Dividendpaid 49.8 64.4 72.4 80.4

InterestCover(x) - - - - Dividendtax 8.6 9.0 10.1 11.3

CurrentRatio(x) 2.8 3.1 3.3 3.7 Inc.inT.Liab. 76.1 50.1 50.1 50.1

Inc.inS.Capital 46.2 0.0 0.0 0.0

SalesPerShare 66.6 92.1 115.1 140.4 C.F.Financing 28.5 23.2 32.4 41.6

EPS(Rs.) 14.3 18.4 23.4 28.4 Op.CashBalance 639.0 259.8 325.5 418.6

DPS(Rs.) 3.1 4.0 4.5 5.0 Cl.CashBalance 259.8 325.5 418.6 579.1

(Rs.cr)

MATASECURITIESINDIAPVTLTD

2RahimtoolaHouse,1stFloor,7HomjiStreet,Fort,Mumbai400001

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countries. Persons intowhose possession this documentmay come are required to inform themselves of, and to observe, such

restrictions.Thismaterialisforthepersonalinformationoftheauthorizedrecipient,andwearenotsolicitinganyactionbasedupon

it.Thisreportisnottobeconstruedasanoffertosellorthesolicitationofanoffertobuyanysecurityinanyjurisdictionwheresuch

anofferorsolicitationwouldbeillegal.NopersonassociatedwithMATASecuritiesisobligatedtocallorinitiatecontactwithyoufor

thepurposesofelaboratingorfollowingupontheinformationcontainedinthisdocument.Thematerial isbaseduponinformation

thatweconsiderreliable,butwedonotrepresentthat it isaccurateorcomplete,and itshouldnotberelieduponassuch.Neither

MATASecurities,

nor

any

person

connected

with

it,

accepts

any

liability

arising

from

the

use

of

this

document.

The

recipient

of

this

materialshouldrelyontheirowninvestigationsandtaketheirownprofessionaladvice.Opinionsexpressedareourcurrentopinions

asofthedateappearingonthismaterialonly.Whileweendeavortoupdateonareasonablebasisthe informationdiscussedinthis

material,theremayberegulatory,compliance,orotherreasonsthatpreventusfromdoingso.Prospective investorsandothersare

cautionedthatanyforwardlookingstatementsarenotpredictionsandmaybesubjecttochangewithoutnotice.Weandouraffiliates,

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