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Rolta: Steady growth

May 15, 2002

Rolta has posted a 2% growth in revenues for 1QFY03, on a YoY basis. Inspite of operating margins improving significantly, the bottomline has also grown by 2%. The rise in operating margins did not result in bottomline growth due to increased depreciation costs and taxation. On a sequential basis (QoQ), the company has shown a significant growth of 11% in topline and a 101% growth in net profits. The large rise in net profits stems from a steep improvement in operating margins and a sharp decline in taxation. It seems that Rolta chose to pay most of its taxes for FY02, in the last quarter of the fiscal. This lowered the net profit figure in 4QFY02. The sharp improvement in net profits (for 1QFY03) is likely due to a seasonal effect rather than a remarkable improvement in performance. The company would see low sales in 4Q of every fiscal followed by a steep rise in revenues the next fiscal.

(Rs m) 4QFY02 1QFY03 Change
Sales 736 814 10.7%
Other Income 0 1 92.4%
Expenditure 373 310 -16.9%
Operating Profit (EBDIT) 362 504 39.1%
Operating Profit Margin (%) 49.2% 61.9%  
Interest 58 57  
Depreciation 78 121 55.5%
Profit before Tax 227 327 43.9%
Tax 73 15 -79.3%
Profit after Tax/(Loss) 155 312 101.6%
Net profit margin (%) 21.0% 38.3%  
No. of Shares (eoy) (m) 63.7 63.7  
Diluted Earnings per share* 9.7 19.6  
P/E (x)   8.8  

The revenues from solutions and services in the area of CAD (computer aided design), CAM (computer aided manufacturing) and GIS (Geographic Information Systems) contributed 97% to the total revenues. The segment showed a 10% sequential growth in 1QFY03. Most on the solutions that Rolta offers are from Intergraph Corporation, a global leader in the area of digital mapping, GIS and plant design automation solutions. Rolta's high operating margins are likely due to the fact that its offers implementation and customization services for software products from Intergraph.

The remaining 3% of the revenues came from its services and solutions in the area of Internet and E-business solutions. Rolta has forayed into businesses like Internet service provider and software services to broaden its offerings. Going forward, the company plans to tap the emerging opportunity in the area of Internet Telephony Services. Also, it has established a development centre in the US.

At the current market price of Rs 172, the stock is trading at a P/E multiple of 9x its FY02 annualised earnings. The stock price is likely to gain based on improvement in valuations attributed to the company. The company posted an 18% growth in net profit for FY02 and is likely to growth at a similar pace going forwarded. This might cause the P/E multiple to move north.

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