Rolta India - Weakness persists – Contraction in order-book - Prabhudas Lilladher

Rolta's reported disappointing Q2FY12 result with revenue below our expectation and order book witnessing sharpest decline ever. This disappointment was across the three segments. As Rolta moves away from the services business to solution business, we continue to see likellihood of volatile earning performance in H2FY13. The FCCB maturity in June-12 likely to have biggest overhang on the stock in near term. The management is in the process of raising ECB or rupee loan to replace it.

- Revenue below but margins ahead: Rolta reported revenue de-growth of 2.9% QoQ to Rs4.72bn (PLe: Rs5.29bn, Cons: Rs5.16bn). EBITDA margin expanded by 341bps QoQ to 40.2% (PLe: 39%, Cons:38.7%), driven by margin expansion in EGIS and EDOS vertical by 466bps and 520bps QoQ. EPS grew by 4.8% QoQ to Rs4.05 (PLe Rs4.80, Cons: Rs4.81), due to lower forex loss.

- Sharpest decline in order-book ever: Order book de-grew by 2.9% QoQ to Rs20.2bn, sharpest decline ever. Order book de-grew by 5.7%QoQ, the sharpest among all the segments, whereas EDOS and EICT were flat. Book-to-Bill (LTM) has fallen to lowest level in last 22 quarters to 1.06. The company's decision to move away from low end services business to solution offering would put additional pressure on order-book in near future. However, the management remained confident of improved pipeline to start contributing in Q3FY12.

- Other highlights: 1) Growth Guidance FY12 PAT: 13-15% YoY 2) Total Debt Rs18.8bn 3) Capex FY12: Rs300cr+ 4) Cash-flow (–)Rs130cr in H1Fy12, but expect positive cash flow of Rs130cr+ in H2FY12 5) Order book decline largely because of strategic decision to not particpate in low-end work 6) Contract win a) RAPDRP from Bihar government b)World bank project for AP govt.

- Valuation and Recommendation – 'Accumulate', target price of Rs90: We believe that the sharpest declinein the order book is a matter of concern. We expect FCCB maturity to be the biggest overhang in near term. We retain our 'Accumulate' rating, with a target price of Rs90, 7x FY13e earnings estimates.

Source : Equity Bulls

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