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Rolta: Improving margins

Apr 1, 2002

Rolta, the CAD/CAM services and solutions provider closed its FY02 (year ending December 31st 2001) with a healthy 19% growth in topline. The net profits for the year grew by 16%. The highlight of the performance is the fact that Rolta managed to improve its operating margins from 54% to 57%, despite the fact that the fiscal was one of the toughest for software companies. The improvement in margins was possible due to the strict control on costs. While the company's employee costs grew by only 9%, the other expenditure declined by 3%. However, the improvement in operating margins did not reflect in the net profit growth. This was due to the decline in other income. Also, growth in depreciation and taxes was much faster than that of the topline. Consequently, net profit growth was stunted.

(Rs m) FY01 FY02 Change
Sales 2,532 3,008 18.8%
Other Income 18 7 -63.3%
Expenditure 1,166 1,300 11.5%
Operating Profit (EBDIT) 1,366 1,708 25.1%
Operating Profit Margin (%) 53.9% 56.8%
Interest 168 204 21.8%
Depreciation 281 368 30.8%
Profit before Tax 934 1,142 22.2%
Tax 25 88 250.0%
Profit after Tax/(Loss) 909 1,055 16.0%
Net profit margin (%) 35.9% 35.1%
Diluted number of shares 63.6 63.6
Diluted Earnings per share* 14.3 16.6
P/E (x) 6.6

For FY02, the company earned 97% of its revenues from the CAD/CAM/GIS services and solutions business. The remaining part of the revenues came from its Internet (ISP) and e-business solutions service offerings. During the fiscal the company added services offerings that include e-business and e-security solutions. The new offerings also include solutions in the area of business intelligence, data warehousing, mining and customization.

Rolta's offerings in the CAD/CAM areas allow it to tap markets that have been traditionally less pursued by the Indian software sector. Also its offerings in the GIS segment would allow it to tap opportunities emerging from the growth of the retailing sector in the country. Software companies in the recent past have seen growth coming from the logistics vertical. This too is a positive for the company.

At the current market price of Rs 109, the stock is trading at a P/E multiple of 7x its FY02 earnings. The company's foray into e-business related solutions is likely to add some pace to its topline, as traditionally the growth of the CAD/CAM industry has been lower than that of the software sector.

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