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Rolta India
Shaw-Rolta JV stake sale dampens earnings growth; Hold
Rolta sold its 50% stake in Shaw-Rolta, effective 31 Dec ’10, for
US$27.5m and an additional US$8m over the next two years. Rolta
used to consolidate revenue of ~US$3.5m a quarter to its EDA
division. The absence of this, hereon, would dampen revenue and
earnings growth going forward. We lower our price target to `170
from `220, while maintaining our Hold rating.
Order-book growth. Rolta India’s US dollar revenue rose 3.4%
qoq (to US$98.5m), while its margin was 27bps lower qoq in 2Q, as
per our estimates. Its order book grew 1.1% qoq to `19bn
(including a ~9% decline in EDA due to the stake sell-off).
Key 2Q highlights. Rolta saw 439 employees leave (including
those lost due to the JV sell-off), decreasing the total base to 4,212.
Billing rates were up 1.3% and 0.7% for GIS and EDA businesses
respectively, while remaining flat for EICT. Rolta saw a one-off
gain of `761m on account of its JV stake sale.
Change in estimates. We lower our FY11e/FY12e/FY13e
earnings 5.3%/14.6%/10.2%, mainly on lower revenue and
earnings due to the sell-off and salary hike from Jul ’11.
Valuation and risks. Our target price of `170 implies a target
multiple of 10x Mar ’12e earnings. Our target PE is at 50% discount
to the average PE of large-cap IT stocks (FY12e PE of 20x).
Downside risk: equity dilution; upside risk: non-annuity based
revenue-increases in clients’ capex programs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Rolta India
Shaw-Rolta JV stake sale dampens earnings growth; Hold
Rolta sold its 50% stake in Shaw-Rolta, effective 31 Dec ’10, for
US$27.5m and an additional US$8m over the next two years. Rolta
used to consolidate revenue of ~US$3.5m a quarter to its EDA
division. The absence of this, hereon, would dampen revenue and
earnings growth going forward. We lower our price target to `170
from `220, while maintaining our Hold rating.
Order-book growth. Rolta India’s US dollar revenue rose 3.4%
qoq (to US$98.5m), while its margin was 27bps lower qoq in 2Q, as
per our estimates. Its order book grew 1.1% qoq to `19bn
(including a ~9% decline in EDA due to the stake sell-off).
Key 2Q highlights. Rolta saw 439 employees leave (including
those lost due to the JV sell-off), decreasing the total base to 4,212.
Billing rates were up 1.3% and 0.7% for GIS and EDA businesses
respectively, while remaining flat for EICT. Rolta saw a one-off
gain of `761m on account of its JV stake sale.
Change in estimates. We lower our FY11e/FY12e/FY13e
earnings 5.3%/14.6%/10.2%, mainly on lower revenue and
earnings due to the sell-off and salary hike from Jul ’11.
Valuation and risks. Our target price of `170 implies a target
multiple of 10x Mar ’12e earnings. Our target PE is at 50% discount
to the average PE of large-cap IT stocks (FY12e PE of 20x).
Downside risk: equity dilution; upside risk: non-annuity based
revenue-increases in clients’ capex programs.
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