Rolta:Order book grows well, positives priced in; Hold :: Anand Rathi

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Rolta India
Order book grows well, positives priced in; maintain Hold



 Healthy order book, positives priced in; Hold. Rolta India’s
US dollar revenue rose 7.7% qoq, while its margin was higher on
account of lower SG&A costs (down 2.4% qoq). In 1Q, the order
book grew 5.5% qoq to `18.82bn. We maintain our target of
`220 and maintain our Hold on the stock.
 FY11 revenue guidance maintained. Management retains
guidance of FY11e revenue of `17.2-17.6bn (12-15%) and profit
growth of +15%. We believe this is achievable and forecast EPS
of `18.6 and `22.3 for FY11e and FY12e respectively.
 Key 1Q highlights. Rolta saw 55 employees leave, resulting in a
total of 4,651 employees in 1Q. Billing rates were up ~3% for
both the EDA and GIS businesses. EICT saw flat billing rates.
 Change in estimates and introduction of FY13 estimates. We
raise our FY11 and FY12 earnings estimate respectively 0.9% and
2.2%, taking into account management guidance, order book
growth and better margin forecasts. We expect about 16%
volume growth, flat pricing, and a 20-bp margin drop in FY12e.
 Valuation. We maintain our target price at `220 implying a target
multiple of 12x Sep ’11e earnings (maintained at 12x). Our target
P/E is at a 40% discount to the average of large-cap IT stocks
(FY11e P/E of 19.5x). Risks: i) Equity dilution ii) Non-annuity
based revenue - increases in clients’ capex programmes could
improve the company’s financials.