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Rolta India
Sells stake in Shaw JV
„Minimal impact to revs from stake sale in Shaw JV
Rolta today announced that it has sold its 50% share in Shaw Rolta Ltd to its JV
partner, Stone & Webster Inc – a subsidiary of The Shaw Group Inc. Shaw JV
contributed ~USD10mn (~3%) to revenues during FY10. JV was set up in 2004 to
provide offshore engineering services for Shaw’s global projects and to focus on
EPC business in India, including nuclear projects. Rolta will receive USD27.5mn
immediately and USD8mn over next two years for stake sale.
To pursue opportunities with other EPC majors
The stake sale now enables Rolta to pursue opportunities (had exclusivity
agreement with Shaw) with other EPC majors to offer its engineering design
services for Nuclear energy segment. As per media reports, India plans to set up
60,000 mega watts of nuclear power capacity over next 14 years. Rolta has
strong capabilities in the segment and is already working with Indian government
organizations like NPCIL and other leading agencies to provide design services.
Retains right to jointly work with Shaw on Nuclear projects
Mgmt highlighted that given regulatory constraints Shaw group has no plans to
pursue nuclear power business in India; however, Rolta retains the retains right of
first refusal in case Shaw group intends to pursue opportunities in this space.
22% FY10-13E EPS CAGR; Attractive valuations
We forecast 22% EPS CAGR over FY10-13E driven by strong growth in GIS
(mapping) and IT services. For 2Q we forecast revenue growth of 3.1% QoQ,
given non recurrence of IP revenues reported in 1Q. Earnings likely to grow by
2.8% QoQ. Valuations at 8x FY11E and 7x FY12E remains attractive. Retain Buy
Price objective basis & risk
Rolta India (RLTAF / XLROF)
Our PO (local stock) of Rs220 is at 12x FY11E PE, in line with the historical
average. Our PO (for the GDR) of USD4.6 is at par with the local PO. Risks: a)
Non-annuity nature of business. b) Risk related to possible acquisitions. c)
Industry-wide risk of increasing wages, increasing taxes, and rupee appreciation.
Upside Risks : significant wins from defense for Thales JV and earlier than
anticipated recovery in engineering and enterprise solutions business.
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