X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Rolta India: Management needs focus - Outside View by Luke Verghese

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Rolta India: Management needs focus
Jan 19, 2012

It is important for enlightened companies to come clean on their year- end financial statements

Company needs to be more focussed

Reconstructing ingenious quotes and anointing boardrooms with vision and mission statements is the flavour of the season for India Inc these days. Rolta has posted a delectable observation of Charles Darwin, besides giving a low-down of its many laudable objectives. It would appear to be a tough act to follow for mere mortals - but no harm in making a go of it I guess. The great helmsman of the Rolta group is the long serving Mr Kamal K. Singh, who is also the promoter, Chairman and Managing Director.

In a nutshell, the company appears to operate in the high end IT space. Its revenues are derived under three heads of income both for the standalone company and for the consolidated entity: Enterprise Geospatial and Defence Solutions, Enterprise Design and Operation Solutions, and Enterprise IT Solutions. (The first named brought in 62% of the IT revenues, the second 26%, with Enterprise IT Solutions bringing in the balance with 12%). To many readers these high funda sounding terms must read more like Greek and Latin than plain English. According to the dictionary 'Geospatial Information' means data concerning a place collected in real time. Using geographical information systems, geospatial information can now be layered and analysed to understand complex situations like economic trends, natural disasters , ocean levels, military action, population shifts etc. Enterprise design means web site design and development. Enterprise IT Software means software used by organisations for specific purposes. The company registered a gross revenue of Rs 16 bn and posted a pretax profit of Rs 5.57 bn, while the consolidated group consisting of the parent plus its nine subsidiaries rang up gross revenues of Rs 19.4 bn and squeezed out a pre-tax profit of Rs 4.6 bn. As one can see the consolidated results does not add much value and is also a drain of sorts on the company's resources. But more on this point later.

High quality staff and IPs

The company says that more than 75% of the 3,500 plus professionals in the company are armed with relevant engineering, postgraduate or PhD degrees. As a way up the value chain Rolta has acquired many companies having best of breed technologies in the US and Canada. The company has also acquired key technologies and assets of reputed companies in the US and Canada. It is also in partnership with big ticket IT brands across the North American and the European hemisphere. In an effort to get the message across to its shareholders, the company claims that its enterprise geospatial and defence solutions business group is spread over 20 countries worldwide. The company has also spent precious sums of money on glossy four colour two page spreads explaining what its business is all about.

Some anomalies

There are three specific anomalies that come across very clearly in a manner of speaking. One is why a company which is on cloud nine and tom toms about it too in large detail has chosen to provide only the abridged statement of accounts. No explanation appears to be forthcoming in the annual report on why it resorted to this short cut. The second is the enormous difference in the remuneration earned by the chairman and managing director and the principal promoter on the one hand, and the two other joint managing directors on the other. According to the annual report, the head honcho earned a total remuneration, being a slice over Rs 100 m, almost all of it in the form of Commission. One joint managing director was entitled to a pagaar of only Rs 34.5 m, while another joint managing director had to make do with even less - a gross salary of Rs 20 m. Even the President, International Operations had to make do with a package of Rs 32 m. The inter-se remuneration structure of the directors appears to be highly skewed. The five whole time directors collectively received a gross remuneration of Rs 203 m, and this payout appears to account for over 10% of all remuneration during the year. The third is that it is one of the very few information technology companies monitored by Capital Market magazine which has chosen an accounting year end other than March. Its nine subsidiaries on the other hand have chosen accounting year endings in June, Dec and March. Whether by design or by accident it is all panning out beautifully for the parent. Besides, such tricks only add to the collective confusion. But let that be.

Bare bone financials

There is really very little to go by, given the bare bone details which have been furnished in the standalone statement of accounts. Still there are bits and ends to go by. Suffice to state here that the company got by with borrowings of Rs 13.8 bn at year end. The net cash outflow resulting from the investments etc that it made during the year had to be partly funded by additional borrowings. It appears not to be generating sufficient cash from its operations to fund its capital expansion schemes. The other interesting point is that the company boasted a gross block of Rs 20 bn at year end, but it could rustle up sales income from operations of only Rs 14.5 bn. This is a truly a remarkable state of affairs for an IT solutions company. Unfortunately there is no breakdown of what these fixed assets constitute - save an inkling of what it may contain. The cash flow statement for the year declares that the company purchased intangible IPs worth Rs 4.7 bn during the year. That is a lot of intellectual property to buy, and presumably this expenditure has been capitalised. It would have helped if the company gave some details of how this purchase will translate into revenues in the future.

Notes to the accountsv

The company also has a high level of debtors' out-standings at year end. In percentage terms and on a rough basis, the outstanding accounted for 47% of all billings during the year. Not only that, it is experiencing difficulty in generating margins. The other income of Rs 1.5 bn that it received during the year accounted for 27% of pre-tax profits. (The company sold its stake in its joint venture resulting in the manna from heaven and helping to boost the bottom-line). The notes to the accounts also states that the outstanding balances at year end in respect of some of the sundry debtors, creditors and deposits are subject to confirmation from the respective parties. This is also another first for a large IT company. Significantly the company has not quantified the balances involved in the reconciliation effort.

The subsidiaries

Significantly, the parent's capital investments in its subsidiaries also do not bring in a farthing as direct tithes. The total book value of its investments in its unquoted siblings and two JVs amounts to Rs 6.2 bn. (It has also advanced loans to them to the tune of Rs 1.1 bn. Whether these loans are interest bearing or not is not readily known). It has 10 subsidiaries - of which nine are based in the USA, Europe, Australia and the Gulf. It has one 51% subsidiary based in India sporting the name Rolta Thales. Its total dividend receipts in 2010-11 were Rs 32 m. None of the nine siblings whose brief financials have been incorporated separately with the consolidated accounts have declared any dividend during the year. Apparently the dividend receipts must have been realised courtesy the JV which was sold to the joint venture partner. It also has one step down subsidiary in the US called Rolta TUSC Incorporated which is a subsidiary of Rolta International US. Its brief year end financials, which have not been shown, was for the six months ended December 2010. What exactly does this company do for a living, now that it has been incorporated?

It is not difficult to see why none of the siblings have been able to declare any dividend. None of them have turned in a pre-tax profit during the year. Rolta International the holding company of the US based siblings is the largest by far both in terms of assets and sales. At year end it boasted assets of Rs 4.7 bn and a turnover of around Rs 3 bn. But it could only manage a pre-tax loss of Rs 264 m. All of them without exception have accumulated losses too. The parent has not painted any picture of the operating performance of its siblings, so there is really very little to go by. Presumably the parent has some game plan for these lilliputs or some such.

All in all this is not a company which exudes much confidence in a prospective investor.

Disclosure: I do not hold any shares in this company, either directly, or under any non discretionary portfolio management scheme

This column Cool Hand Luke is written by . Luke has been a business journalist, financial analyst and knowledge management head with a professional experience of more than 20 years. An avid watcher of the stock market, he has written extensively on stock market trends. His articles have featured in Business Standard, Financial Express and Fortune India amongst others. He has also been the Deputy Editor, Fortune India and the Financial Editor of The Business and Political Observer.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Rolta India: Management needs focus". Click here!

1 Responses to "Rolta India: Management needs focus"

ramesh

Jan 28, 2012

Hi Luke,
This is a brilliant analysis just by looking at the financial report of Rolta.As everyone thinks Rolta is not an IT company, it is a sort of hawala company.I worked in this company for 2 years at a middle management position 3 years back in Enterprise solutions.During that entire period we never had any work and no clients! but in the quarterly/annual reports company is recording revenues in that division.We used to wonder where the company is getting sales and how they are paying salary for us!.They are doing sub contract works now a days, but still questionable when compared with the kind of salaries they pay in Enterprise division.Their salaries are low for geospatial and defence staff, but the managers and VPs of each division are enormous.There are so many managers and VPs for each division and we wonder how they are managing such high salaries for them without any credible work to deliver.The corporate culture is like a typical family run business.If Chairman or their family members are visiting company,none of the staff should be outside campus.If you are in lift,in which they intend to take, you will be thrown out of lift irrespective of your status in company!.

While i don't had any interest in this company, your article highlighted the secrecy in accounting practices and the shoddy revenue and profit reporting and definite NO for investors.Chairman had number of other business beyond this company, notably diamond trading.

Like (1)
  
Equitymaster requests your view! Post a comment on "Rolta India: Management needs focus". Click here!

More Views on News

ROLTA INDIA Announces Quarterly Results (2QFY19); Net Profit Down 356.3% (Quarterly Result Update)

Nov 14, 2018 | Updated on Nov 14, 2018

For the quarter ended September 2018, ROLTA INDIA has posted a net profit of Rs 581 m (down 356.3% YoY). Sales on the other hand came in at Rs 6 bn (down 16.3% YoY). Read on for a complete analysis of ROLTA INDIA's quarterly results.

ROLTA INDIA 2017-18 Annual Report Analysis (Annual Result Update)

Oct 1, 2018 | Updated on Oct 1, 2018

Here's an analysis of the annual report of ROLTA INDIA for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of ROLTA INDIA. Also includes updates on the valuation of ROLTA INDIA.

ROLTA INDIA Announces Quarterly Results (1QFY19); Net Profit Down 233.4% (Quarterly Result Update)

Aug 16, 2018 | Updated on Aug 16, 2018

For the quarter ended June 2018, ROLTA INDIA has posted a net profit of Rs 367 m (down 233.4% YoY). Sales on the other hand came in at Rs 6 bn (down 12.1% YoY). Read on for a complete analysis of ROLTA INDIA's quarterly results.

Newgen Software Technologies Ltd. (IPO)

Jan 15, 2018

Should you subscribe to the IPO of Newgen Software Ltd?

Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

Aug 5, 2017

How to get exclusive insider recommendations from Ankit Shah.

More Views on News

Most Popular

These Are the Kind of Blue Chips You Should Invest In(The 5 Minute Wrapup)

Nov 9, 2018

All blue chip companies are large caps but all large caps are not blue chips.

Get this Small Cap Logistics Company at a 16% Discount Right Now...(Profit Hunter)

Nov 6, 2018

If you turn the clock back, the current macroeconomic climate is nothing new. The markets have seen them all, and every downcycle has been succeeded by gravity defying gains...more so in the small cap space. This time will be no different.

This Was a Large Cap. But Was It Safe?(Chart Of The Day)

Nov 9, 2018

Investing in large caps is not always safe. Consider the right metrics to judge the safety and quality of large caps.

Why the Realty Sector's Recovery Has Been Delayed(Sector Info)

Nov 15, 2018

NBFC and IL&FS crisis have worsened the realty sector woes. Is there a light at the end of the tunnel for real estate sector?

Does it Make Sense to Invest in Offshore Funds?(Outside View)

Nov 6, 2018

Many investors prefer to invest in offshore funds because of the rupee depreciation and on-going downtrend in the markets, but it is to be invested only when there is no option available to invest in India.

More

Small Investments
BIG Returns

Zero To Millions Guide 2019
Get our special report, Zero To Millions
(2019 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

ROLTA INDIA SHARE PRICE


Nov 16, 2018 (Close)

TRACK ROLTA INDIA

  • Track your investment in ROLTA INDIA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

ROLTA INDIA 5-YR ANALYSIS

COMPARE ROLTA INDIA WITH

MARKET STATS