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EARNINGS REVIEW
Rolta India (ROLT.BO)
Neutral Equity Research
Above expectations on one-off gains; maintain Neutral
What surprised us
Rolta reported 2QFY11 revenues of Rs4.4 bn (up 3.2% qoq) and adjusted
net income of Rs781 mn (11% above GSe). Revenue growth was supported
by 12.2% qoq growth in solutions/sub-contracting revenues. EBIT margins
compressed by 60 bp qoq as D&A continued to remain high (at 18.3% of
sales). Net income beat was on account of gain on sale of their stake in
Shaw Rolta JV (SWRL) (Rs761 mn post tax) and lower tax rate on core
income (3.1%). Capex spend for 1HFY11 has already been Rs2.7bn
(including inorganic), in line with our estimate of Rs5bn and surpassing
full year guidance of Rs2.5-2.6bn. Headcount continued to go down, by 439
people to 4,241 in this quarter, lowest level since 4Q2007. Management
maintained their 15% EPS growth guidance for FY11 despite revenue loss
from SWRL sale.
What to do with the stock
We maintain our Neutral rating on Rolta. We revise our FY11E-FY13E EPS
by +26%/-6%/-5% to account for the gain from stake sale in SWRL JV and
the respective revenue loss. Hence, we reduce our 12-m Director's Cutbased TP to Rs166 (from Rs182). Our FY12E-FY13E EPS are 10% below
Reuters consensus estimates. We continue to believe that (1) lack of
catalysts over the near-term (2) muted revenue growth outlook (15% for
FY12E vs. 21% for the sector) and (3) industry specific risks related to
supply side concerns and higher taxes should limit a re-rating in the stock.
Risks: contract wins, slowdown in capex spends (upside); slow order book
growth (downside).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Rolta India (ROLT.BO)
Neutral Equity Research
Above expectations on one-off gains; maintain Neutral
What surprised us
Rolta reported 2QFY11 revenues of Rs4.4 bn (up 3.2% qoq) and adjusted
net income of Rs781 mn (11% above GSe). Revenue growth was supported
by 12.2% qoq growth in solutions/sub-contracting revenues. EBIT margins
compressed by 60 bp qoq as D&A continued to remain high (at 18.3% of
sales). Net income beat was on account of gain on sale of their stake in
Shaw Rolta JV (SWRL) (Rs761 mn post tax) and lower tax rate on core
income (3.1%). Capex spend for 1HFY11 has already been Rs2.7bn
(including inorganic), in line with our estimate of Rs5bn and surpassing
full year guidance of Rs2.5-2.6bn. Headcount continued to go down, by 439
people to 4,241 in this quarter, lowest level since 4Q2007. Management
maintained their 15% EPS growth guidance for FY11 despite revenue loss
from SWRL sale.
What to do with the stock
We maintain our Neutral rating on Rolta. We revise our FY11E-FY13E EPS
by +26%/-6%/-5% to account for the gain from stake sale in SWRL JV and
the respective revenue loss. Hence, we reduce our 12-m Director's Cutbased TP to Rs166 (from Rs182). Our FY12E-FY13E EPS are 10% below
Reuters consensus estimates. We continue to believe that (1) lack of
catalysts over the near-term (2) muted revenue growth outlook (15% for
FY12E vs. 21% for the sector) and (3) industry specific risks related to
supply side concerns and higher taxes should limit a re-rating in the stock.
Risks: contract wins, slowdown in capex spends (upside); slow order book
growth (downside).
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