Sunday, July 02, 2017

Rolta India Ltd: Buy
CMP: Rs.51.55
For the full year FY17, the net profit of Rolta India Ltd, declined 15.34% to Rs.105.49 crore in the year ended March 2017 as against Rs.124.60 crore during the previous year ended March 2016. Thus Rolta India Ltd is still a profit making IT company, whose large chunk of revenues come from domestic space and hence not much affected by currency fluctuations. 

Sales declined 20.48% to Rs.1454.91 crore in the year ended March 2017 as against Rs.1829.71 crore during the previous year ended March 2016.

......but it is surprising that the shares of Rolta India Ltd (Rs.51.55) are trading well below its book value Rs.173.39....only because of debt....??!! 

But inspite of high debts the shares of Adani Groups are flying, same is the case of DLF Ltd, HDIL and many such companies.

Rolta India Ltd's market cap is only Rs.848.21 Cr  against FY17 turnover of Rs.1454.91 Cr. It has an EPS of Rs.6.40 (standalone basis). 

The company works in areas like big data analytics, into cloud transformation, smart cities, mobility, cyber security and enterprise security and into enterprise IT and digital transformation kind of work in defence. This is the happening sector, post GST.

Rolta India Ltd is at present doing integration type of work more..and as far as its basic fundamental revenue line is concerned, it is in the range of about Rs 750-800 Cr in a quarter and is stable, as its has reduced low margin work, according to it's CMD, Mr.K P Singh. The company has tied up with BEL for the much coveted BMS project (Indian Defense).

In early 2015,  there were media reports that the exclusive consortium of Bharat Electronics Limited (BEL) and Rolta India Limited has was selected as a development agency for a more than Rs.50,000 crore Battlefield Management System (BMS) project by the Defence Ministry.

The BMS project, categorised as a “Make” programme under the Defence Procurement Procedure (DPP), will be one of the largest solutions to be indigenously manufactured for the country’s defence, according to BEL, a Navaratna PSU.

It said the project is meant to deliver Command and Control capabilities to the fighting echelons, operating at the forward edge of the Tactical Battle Area at the Battalion and Combat Group levels.

The press release said Rolta has also invested significantly in BMS technologies indigenously and has over the years delivered cutting edge Command, Control, Intelligence, Surveillance and Reconnaissance (C2ISR) systems, to the Indian Military. Deployed across the country, military commanders use Rolta Technology as a force—multiplier.

It said as a part of the consortium, Rolta will execute its role and responsibility in areas of BMS application software development and applicable licensing, GIS software and GIS data services.

Rolta will also jointly work with BEL for manufacturing subsystems for the soldier system, the overall system design, integration, installation, commissioning and maintenance of the BMS solution.

On the other side the discussions are still on, among bondholders to negotiate a debt restructuring. It is pertinent to mention here that Rolta India Ltd failed to pay interest of $6.8 million (~Rs.46.6 Cr) due on its 2018 senior unsecured guaranteed notes even after the expiry of the 30-day grace period. S&P observed Rolta’s liquidity situation deteriorated in Q4FY16 due to mounting receivables mainly from the government of India’s defence security projects. So, who is responsible: is it not the destructive economic policies of the government ?

On the other hand the tightening of norms for H-1B visas under President Donald Trump’s "‘Buy American, Hire American" campaign and a strong INR, is likely to have least impact on companies like Rolta India Ltd, which derives most of it's revenues from the domestic market.

Caution: The IT services sector is currently grappling with changes in how clients meet their IT requirements. Instead of using armies of engineers that throng these service providers, clients are increasingly turning to advanced software — often provided by small start-ups — to eliminate or reduce the need for IT manpower. This has impacted the global IT services business, dominated by talent and companies from India.

Buy the shares of Rolta India Ltd at Rs.51.55, but please do keep a SL at Rs.46.50. T1: Rs.72, T2: Rs.77, T3: Rs.92.

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