Rolta has posted a sequential drop in revenues of 4% for 2QFY01. The decline in net profits is a marginal 1.5%. The company has managed this by controlling its costs. The operating margins of Rolta have however, improved by 430 basis points. This was achieved mainly due to the decline in raw material costs.
However, on a YoY basis the company's topline has grown by 30.7% and the bottomline has grown by 40.4%. The concern with the results are that the company's topline has declined on a QoQ basis. However, the positive is that Rolta's operating margins have improved significantly.
Considering the market environment for the software industry, most of the companies have shown a decline in topline (QoQ basis), barring the top rung software companies. But the smaller companies have neither shown a growth a topline nor have they been able to control costs. Consequently, their operating margins have gone for a toss.
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Rolta provides IT solutions & services for specific markets i.e. Geo-Spatial Technology for AM (automated mapping)/FM (facilities management) & GIS (geographical information systems); plant design automation, mechanical design automation / collaborative product commerce and e-business solutions & Internet infrastructure. Rolta's service offerings in these areas are different from those offered by other software companies. The CAD/CAM segment traditionally has lower growth rates as compared to the software sector in general.
At the current market price of Rs 51, the stock is trading at a P/E multiple of 3 times its 2QFY02 annualised earnings. The stocks valuations rely on the markets outlook towards the sector and is unlikely to outperform the sector. This is due to the fact that the company's line of business is such that it cannot post dazzling growth rates. Consequently, Rolta's valuations are expected to grow steadily.
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