Rolta: Steady year. - Views on News from Equitymaster

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Rolta: Steady year.

Mar 20, 2001

Rolta earned revenues of Rs 2,531m in FY01, a growth of 42% compared to FY00. The highlight of the performance is that the company’s operating margins have gone up by a significant 680 basis points. This is due to the control on expenditure by Rolta. Other expenditure as a percentage of revenues has fallen from 18% in FY00 to 8% in FY01. The companies operating margins are one of the best in the IT industry. But comparatively the topline and bottomline growth are way below industry average. Considering, Rolta’s size the figures appear to be quite low. The low growth rate could be attributed to the niche market, which Rolta addresses. Rolta is primarily into software for CAD/CAM/GIS and AM/FM conversion (engineering software). Rolta offers Engineering IT solutions in India and services to customers globally. The engineering software growth rates are much lower compared to the application software industry. For example according to estimates by Frost & Sullivan the European CAD/CAM/CAE/PDM Market is expected to grow from US$ 2.3 bn in 1997 to US$ 5.2 bn in the year 2004 a CAGR of just 12%.

But now Rolta has plans to get on the fast track. In September IBM and Rolta India entered into a strategic relationship to pursue the e-business market in India.

(Rs m) FY00 FY01 Change
Sales 1,775 2,532 42.6%
Other Income 10 14 33.1%
Expenditure 935 1,162 24.3%
Operating Profit (EBDIT) 840 1,369 62.9%
Operating Profit Margin (%) 47.3% 54.1%  
Interest 123 168 37.1%
Depreciation 71 281 296.3%
Profit before Tax 657 934 42.1%
Tax 17.5 25 42.9%
Profit after Tax/(Loss) 640 909 42.1%
Net profit margin (%) 36.0% 35.9%  
Extraordinary items 37.5 0.0  
Profit after Tax/(Loss)
incl extradordinary item
602.1 908.6 51%
No. of Shares (eoy) (m) 54.9 63.7  
Diluted number of shares 63.7 63.7  
Diluted Earnings per share* 11.7 14.3  
*(annualised)      
P/E (at current price)   5.8  

Considering a Rs 37.5 m extra ordinary write off by the company in FY00 the net profit figure has gone up by 51% excluding this write off the growth in net profits is 42%.

The company has changed the method it accounts for depreciation. It has sifted from straight-line method to written-down value method. This has caused a significant jump of 296% in the depreciation figure. Rolta will declare a dividend of 27.5% for the year FY01. The stock trades at a P/E multiple of 6 times its FY01 earnings.

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