Company Report

Rolta India

Information Technology
December 30, 2006
ICICIdirect Code: ROLIND

Company Profile
Registered Office
Rolta Tower 22nd Street
MIDC-Marol Andheri (East)
Mumbai - 400093 - Maharashtra.
Telephone No. 91-022-28326666
Website: www.rolta.com

OUTPERFORMER

Target Price
Rs 328

Potential upside
26%

Time Frame
12-15 mths

Rolta India is a leading provider of Geographic Information Systems (GIS)

and Engineering Design Automation (EDA) services in the country. The
company is experiencing strong traction in its businesses, much higher than
it has ever experienced in its 17-year history, and at compelling valuations
making a strong case for investment.
KEY TRIGGERS

Shareholding Pattern as on 30/09/2006

Major Holders

Promoters

40.75

Institutional Investors

16.81

Other Investors

20.13

General Public

22.31

7.99
285.00

52-week Low (Rs)

124.00

Avg. Volume

300902

Absolute Return 3 mth (%)

11.5

Absolute Return 12 mth (%)

34.43

Sensex Return 3 mth (%)

17.79

Sensex Return 12 mth (%)

56.15

Performance Chart

Strategic acquisition
Rolta plans to make a strategic acquisition in the GIS/EDA/E-solutions space
to add capabilities and increase customer base thereby giving a further
fillip to the business.

1965.54

52-week High (Rs)

Employee additions indicate higher traction

The company plans to increase its headcount by 66% during FY06-FY08E
from the current 3,000 employees to 5,000. It also plans to make a capex
of Rs 150 crore every year for the next two years indicating strong
momentum in the business.

Stock Data
Shares Outstanding (in crore)

Riding the wave of infrastructure spending

The quantum of projects that are expected to be executed in areas like
power, refining, telecom and ship-building in India are estimated at a
whopping $350 billion by 2012. We believe that the company is on a strong
footing to capture opportunities arising from these projects on the back of
its strategic alliances with industry leaders like Intergraph, Stone & Webster,
Thales and Dow Chemicals.

Chairman: Kamal K Singh

Business Group: NA

Market Cap (Rs crore)

Current Price
Rs 259 (24th Nov)

Robust order book

The company has a robust order book of Rs 600 crore executable over
two and a half years. This gives us an earnings visibility of Rs 240 crore
per year.

VALUATIONS
At the current price of Rs 259, the stock trades at a P/E of 9.45x its FY08E. We
believe the current price does not capture the upsides of a business that will
be among the key beneficiaries of infrastructure spending in the country. The
company is expected to grow at a CAGR of 26.8% over the next two years and
also see its EPS grow at a CAGR of 31% during the period The companys
valuation looks very attractive when compared to its immediate peer Infotech
Enterprises and other companies in the IT industry. At the target price, the
stock would trade at a market multiple of 12x which is quite undemanding for
a company on a high-growth trajectory. We rate the scrip as an Outperformer.
Exhibit 1: Key Financials
Year to March 31

FY05

FY06

FY07E

FY08E

Net Profit

90.2

127.3

170.1

219.1

Shares in issue (crore)

Nitin Padmanabhan
nitin.padmanabhan@icicidirect.com

ICICI Brokerage Services Limited,

2nd Floor, Stanrose House,
Appasaheb Marathe Road,
Prabhadevi, Mumbai - 400 025.

(Rs Crore)

6.4

8.0

8.0

8.0

EPS (Rs)

14.2

15.9

21.3

27.4

% Growth

-11.1

12.5

33.6

28.8

P/E (x)

18.3

16.3

12.17

9.45

Price/Book (x)

3.6

2.2

1.7

1.5

EV/EBIDTA

11.34

8.09

6.31

4.76

RoNW (%)

19.6

13.5

14.4

15.6

RoCE (%)

16.6

23.7

23.2

24.7

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COMPANY BACKGROUND
Incorporated in 1989, Rolta India is a leading provider of Geographic Information systems (GIS),
and Engineering Design Automation (EDA) services in India. The company is headquartered in Mumbai
and operates through a network of 12 regional /branch offices in India and 7 subsidiaries located in the
USA, Canada, Netherlands, Germany, Saudi Arabia and the UAE.
The company enjoys a 70% market share of the Geo-spatial market (applications like
photogrammetric mapping, aerial triangulation, digital terrain modeling, et.). Rolta formed a 50:50 joint
venture with Stone & Webster to capture emerging opportunities in the power and refining sectors in the
country. The company also has alliances with Intergraph and Computer associates to provide Geospatial/
digital mapping services and e-business related security solutions respectively. The company recently
inked a joint venture agreement with Thales to cater to emerging opportunities in defence command
center projects. Rolta has 2,50,000 sq ft of world-class development centers in Mumbai capable of seating
3,000 employees in a single shift. The company is certified for ISO 9001:2000, BS7799, SEI CMM Level 5
and BS 15000. Rolta also has an impressive client list that includes the likes of British Telecom, Saudi
Telecom, Bear Stearns, Canadian Hydrographic Service, Cingular Shell and an many others.
Exhibit 2: Business Analysis

Source: Company, ICICIdirect Research

INVESTMENT RATIONAL
I. Robust integrated business model
Roltas business is driven by three complimentary pillars: GIS, EDA and E-Solutions. We believe that this triple
combination gives the company an edge as it can cater to the entire portfolio of customer requirements, quite
unmatched by any of its competitors. While the GIS and EDA businesses cater to spatial data / applications and
plant design automation segments respectively, the E-Solutions business addresses the need for e-security solutions and networking required to put spatial and plant design data on networks. In addition to its three pillar
businesses the company is also powered by strategic alliances.
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a) Strategic alliances the key to securing bids

Roltas strategic alliances with industry leaders give it a ready technical pre-qualification to bid for tenders and
request for proposals (RFPs). The companys GIS and EDA business groups bid for projects in the area of defense,
power and refining among others. These are high value projects and require precision expertise. Roltas tie-ups in
key areas increase its competitive positioning (See Exhibit: 3).
Exhibit 3: Strategic alliances
Strategic alliance partners
Domain expertise

Remarks

Stone & Webster

Nuclear, fossil fuel and geothermal

power plants and process plants for
polymers, commodity chemicals,
olefins and refining.

With the addition of 100,000 MW of power

projects by 2012 and oil refining capacities
expected to grow by 70% by 2012 the addressable opportunity for the joint venture is
enormous

Intergraph

GIS and CAD/CAM applications in

various verticals like plant design
and engineering, ship building etc.
Chemical processing technology
and plant design

Intergraph has a 85% market share in

India for GIS systems.

Dow Chemicals

Thales

Defence, aerospace and security

Rolta entered into an agreement with DOW

to act as its partner to implement such
engineering design services.
To address Command, Control, Communications, Computers, Intelligence, Surveillance, Target Acquisition and Reconnaissance (C4ISTAR) information systems, for
domestic and international markets

Source: Company, ICICIdirect Research

ii) Stone & Webster Rolta Ltd (JV)

SWRL addresses Roltas need to be an end to end integrated project services player covering the entire gamut of
activities from engineering design, procurement and construction management. The JV derives its strength from
Stone & Websters expertise in the nuclear/conventional power projects and refining and Roltas strong engineering
design service capabilities. Stone & Webster is a leading player in the US market for nuclear and refining projects
and is credited with a 70% share of the nuclear power generation market in the US. This gives the company a
ready technical pre-qualification for bids. The JV is likely to get a fillip with the approval of the Indo-US nuclear cooperation bill.

iii) GIS Low risk business model

We believe that Roltas GIS business has evolved itself into a low risk model by spreading itself across the value
chain. The companys offerings spread from basic mapping services to building applications around a map database.
Rolta also works across a number of GIS platforms like Integraph, ESRI, GE-Smallworld, Z/I, VISION, Telcordia and
Bentley systems allowing it to cater to clients irrespective of the GIS platform. In addition the company also
generates a number of process IPRs with each projec thereby reducing the cost of executing similar projects at a
later date, thereby increasing margins.
Exhibit 4: Rolta : present across the GIS value chain

Source: Company, ICICI direct Research

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iv) EDA Business driven by strong competencies

The EDA business enjoys the twin advantage of strong design competencies and a low cost base. However the
companys USP is not so much about low cost than it is about its capabilities. The EDA business has four subdivisions that cater to different areas of a projects design: Instrumentation & electrical, Piping, civil & structure and
process & mechanical. Rolta builds efficiencies in each of these divisions by developing process IPRs (software
algorithms) and using technologies like lasergrammetry and photogrammetry to reduce engineering design cycle
time. The company has also built a strong engineering talent pool capable of executing projects at a rapid pace.
The efficiencies derived from these initiatives allows the company to aggressively bid for tenders while keeping
steady state margins.

Exhibit 5: Plant design automation - sound technology platform

Source: Company

iii) One stop engineering design services power house

Rolta has positioned itself as an engineering design services power house by bidding for business only through
global tenders and RFPs thereby increasing the companys visibility in the global arena. The company does not
derive significant revenues from any single customer thereby assuring a very low client concentration risk. The
average deal size in the GIS business is $2 million, $1 million in the EDA business and $0.2 million in the Esolutions space.

II. Opportunity
i) Riding the wave of infrastructure spending
Rolta has firmly positioned itself through its different business segments: GIS, EDA, E-solutions, and joint ventures
to capture the ongoing wave of infrastructure spending. The spends across different sectors like Power, Refining,
Ship building, Defence, Telecom and Public Safety among others is estimated at a whopping $350 billion by 2012.
Power generation in the country is expected to increase from the current 1,15,000 MW to 2,45,000 MW till 2017
through conventional methods and by another 40,000 MW through nuclear power. Refining, petrochemicals,
pipelines & storage capacities are expected to double over the next decade while there is a major shortage of ship
building capacities globally thereby forcing ship builders to expand capacities and outsource ship design contracts.

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Exhibit 6: Plant design automation - sound technology platform

Source: Company, ICICIdirect Research

ii) GIS: domestic market to explode

The domestic market for GIS is likely to see a massive expansion with the implementation of the National Map
policy. The recommendations of the policy, if accepted by the Ministry of defence, can relax restrictions on the
availability of map data and facilitate value addition on digital maps across all cities. The market for GIS in India is
currently driven by the Govt. of India and PSUs. However the implementation of the policy would increase the
adoption of GIS based solutions in the private sector by reducing costs as players like Rolta would no longer
have to re-invent the wheel by creating new maps and obtaining clearances thereby growing the market many
fold.
The global market for GIS is estimated at $6 billion for CY05 and is expected to grow at a CAGR of 7% to $8 billion by CY10. The domestic market is estimated a $80 million which is a fraction of the global market. However
this is set to change as the government and private organizations grappling with pressures of high growth rates
turn to technologies like GIS to manage growth cost effectively.
iii) GIS: Defense opportunities abound
Rolta currently caters to the defense establishment in India through 67 support offices across the country. The
increasing threat of cross border terrorism coupled with the increasing costs of patrolling the countrys large
borders is driving the need for GIS based security solutions. Moreover the governments plan to increase private
participation in the defense sector will give a further fillip to the business. Rolta plans to cater to this opportunity
and also address international markets through its 51:49 joint venture with Thales of France. The joint venture
would develop, customize and deliver state-of-the-art Command, Control, Communications, Computers, Intelligence, Surveillance, Target Acquisition & Reconnaissance (C4ISTAR) information systems. The management expects the joint venture to generate revenues of $500 million over a five year period starting from the last quarter of
FY08E. However we have not factored in any revenues from this JV in our valuations.

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III. Strong growth across segments

i) GIS
The GIS business is seeing good traction with projects from government agencies , telecom and electricity, urban
development and public safety. The GIS business has grown at a CAGR of 21% from Rs 186 crore in FY03 to Rs 329
crore in FY06 and we expect this business to grow at a CAGR of 23% during FY06-FY08E to Rs 499 crore.
ii) EDA
The wave of infrastructure spending that will continue in the eleventh plan would see the EDA business grow at a
CAGR of 29.1% to Rs 255 crores where according to Rolta, it has a 80% market share.

iii) E-solutions
The E-solutions business though originally envisioned to build synergies with the GIS and EDA businesses by
offering networking solutions to provide GIS and plant design data on networks, currently rides on the strategic
alliance with CA (originally Computer Associates) to implement solutions across North America, Europe and Asia.
This business is expected to grow at a CAGR of 37% over the next two years to Rs 98 crores.
Exhibit 7: Revenue growth
Year
GIS (Rs. cr)
EDA (Rs. cr)
E-solutions (Rs. cr)

FY03
186
72

FY04
238
100

FY05
275
120

FY06
329
153

CAGR %
21
29

FY07E
400
202

FY08E
499
255

13

19

52

79

74

98

Source: ICICIdirect Research

iv) Stone & Webster Rolta Ltd (JV)

he joint venture recorded a revenue growth of 128% in FY06 and is expected to grow at a CAGR of 88% over
FY08E to 52.8 crore. The JV is likely to get a fillip with the approval of the Indo-US nuclear co-operation bill.
IV) Acquisition steroid for growth
Rolta plans to make an acquisition that could bolster any one of its business lines. The company raised $90 million
via a GDR issue in 2006 to repay debt and finance the acquisition. The acquisition is likely to materialize by the end
of the current financial year and is expected to be in the range of $10 million to $ 40 million.

V. Business flow - reaffirmed by employee additions and capex

We believe that the business traction over the next two years is reaffirmed by the companys y-o-y employee
addition plans. Rolta had 3000 employees at the end of FY06 and plans to add 1000 employees every year for the
next two years resulting in an incremental capex of Rs150 crore. Rolta has a higher per seat capex as compared
to other IT companies at Rs 15 lakh per seat as the hardware and software requirements for GIS and EDA are
relatively more expensive than standard requirements by IT companies.
Exhibit 8: Employee additions expected to be healthy

Source: Company, ICICI direct Research

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FINANCIALS
EBIDTA margins to decline marginally but remain healthy
Rolta is among the few companies that enjoys EBIDTA margins of over 43%. We expect this rate to dip marginally
on the back of a significant ramp-up in employees and on lower utilization rates which we have built in our
estimates. We have assumed lower utilization rates of 70% from the 85% in FY06 as these new employee additions
would require training thereby reducing EBIDTA margins by 130 bps and 65bps in FY07E and FY08E, respectively.
Exhibit 9: Healthy EBIDTA margins

Source: Company, ICICI Direct Research

Return ratios to improve

Significant cash position on the books is pulling down the return ratios, which in turn is a drag on the valuation.
We expect the ROE and RoCE to improve post acquisition that could also lead to a significant re-rating in P/E. The
company had diluted equity by 25.47% in FY06 through a GDR issue of US$90 million to repay debt and make a
strategic acquisition. The NPM is expected to grow by 145bps in FY07E and by 22bps in FY08E due to zero debt
position. The ROE is also set to grow by 84bps and 125bps in FY07E and FY08E to 14.4% and 15.6%, respectively
on the back of higher volume growth. Moreover the company has maintained a dividend payout ratio of 25%
over the past few years. We have not factored a dividend payout in our estimates keeping in view of the huge
yearly capex. However dividend payouts during FY07E and FY08E should further bolster the RONW.
Exhibit 10: Improving NPM and ROE

Source: Company, ICICI Direct Research

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VALUATIONS
Roltas integrated and low risk business model positions it aptly to exploit the emerging opportunites from infrastructure spending. We see significant value accretion over the long-term from the Thales JV and the passing of
the Nuclear deal with the US. We believe that the current macro opportunities will drive the business to a newer
orbit. Revenues are likely to see solid growth at a CAGR of 26.8%. The stock trades at compelling valuations of 1.4x
book, EV/EBIDTA of 4.4x FY08E and at an undemanding P/E of 8.97x its FY08E EPS of Rs 27.4, while its immediate
comparable peer trades at 11.59x its FY08E EPS of 23.9.

Exhibit 11: Compelling valuation v/s immediate peer

Source: Company, ICICI Direct Research

Even in a comparable peer group comparison (we selected the 13th and 15th largest companies by market cap)
the company is favourably placed. Significant improvement in return ratios will lead to a P/E re-rating. We have
assigned a conservative multiple of 12x based on its historical valuations and looking at the average rating of its
peers on the forward earnings. At the target multiple the stock would trade at Rs 328 giving us an upside of 26%.
We rate the scrip as an Outperformer.

Exhibit 12: Peer Comparison

Subex Azure
Hexaware
Rolta India
Infotech Enterprises

FY07E EPS

FY08E EPS

Prices

P/E FY07

P/E FY08

18.5
11.73
21.3
18.6

42.1
14.82
27.4
23.9

650
174
259
303.5

35.14
14.83
12.16
16.32

15.44
11.74
9.45
12.7

Source: Company, ICICI Direct Research

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GLOSSARY
GIS: GIS (Geographic information systems) is a system used to create, store and analyze map data. These maps
can be created by satellite imaging, ground surveys and aerial surveys. These maps when combined with other
data like telecom networks, vehicles, buildings or any other asset mutates into a powerful tool for managing assets
from a central command center thereby reducing management costs and increasing efficiencies tremendously.
The possible applications that can be developed around a GIS database are only a function of a managements
imagination.

Exhibit 13: GIS: Indicative applications of the technology

Source: Company, ICICI Direct Research

Photogrametry : Photogrammetry is the technique of measuring objects (2D or 3D) from photographs, but it
may be also imagery stored electronically on tape or disk taken by video or CCD cameras or radiation sensors
such as scanners.
Lasergrametry : Lasergrammetry is a precise laser data collection method used to document large objects and
scenes.

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FINANCIAL SUMMARY (CONSOLIDATED)

Profit and Loss Account
Sales growing ata
CAGR of 26.8%

(Rs crore)
FY05

FY06

FY07E

FY08E

Sales
414.57
534.88
673.48
859.90
.................................................................................................................................................
%
Growth
29.02
25.91
27.68
.................................................................................................................................................
Total expenses
267.22
312.04
403.06
520.78
.................................................................................................................................................
Operating
profit
158.44
231.32
282.53
355.17
.................................................................................................................................................
% Growth
46.00
22.14
25.71
.................................................................................................................................................
Other
Income
11.09
8.48
12.10
16.05
.................................................................................................................................................
Interest
11.58
14.68
0.48
0.00
.................................................................................................................................................
EBDT
146.86
216.64
282.05
355.17
.................................................................................................................................................
%Growth
47.51
30.19
25.93
.................................................................................................................................................
Depreciation
48.85
74.66
93.09
111.77
.................................................................................................................................................
Profit Before Tax (PBT)
98.01
141.98
188.96
243.40
.................................................................................................................................................
%
Growth
44.86
33.09
28.81
.................................................................................................................................................
Taxation
8.60
14.67
18.90
24.34
.................................................................................................................................................
Tax
as
%
of
PBT
8.77
10.33
10.00
10.00
.................................................................................................................................................
Net Profit
90.22
127.31
170.07
219.06
.................................................................................................................................................
%
Growth
41.11
33.58
28.81
.................................................................................................................................................

EPS growing at a CAGR of 31.2%

Shares O/S
6.37
7.99
7.99
7.99
.................................................................................................................................................
EPS (Rs)
14.17
15.93
21.28
27.41

Balance Sheet

(Rs crore)
FY05

FY06

FY07E

FY08E

Sources of funds
.................................................................................................................................................
Share capital
63.7
79.9
79.9
79.9
.................................................................................................................................................
Reserves & surplus
392.9
861.5
1104.3
1323.4
.................................................................................................................................................
Secured loans
186.3
9.8
9.8
9.8
.................................................................................................................................................
Unsecured loans
0.0
0.0
0.0
0.0
.................................................................................................................................................
Deferred tax liability
17.2
25.3
25.3
25.3
.................................................................................................................................................
Advance payment of loans
to increase profitability

Current liabilities & prov

108.7
107.8
107.0
134.7
.................................................................................................................................................
Total
768.8
1084.3
1326.3
1573.1
.................................................................................................................................................
Net Block
321.2
384.3
441.0
483.7
.................................................................................................................................................
Capital WIP
42.2
68.2
0.0
0.0
.................................................................................................................................................
Investments
6.5
119.1
134.9
184.3
.................................................................................................................................................
Cash
33.1
88.7
162.1
205.3
.................................................................................................................................................
Trade receiveables
292.0
326.4
384.4
491.8
.................................................................................................................................................
Loans & advances
54.8
74.2
176.2
174.2
.................................................................................................................................................
Inventory
19.1
23.4
27.8
33.8
.................................................................................................................................................
Misc exp W/o
0.0
0.0
0.0
0.0
.................................................................................................................................................
Total

768.8

1084.3

1326.3

1573.1

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Cash Flow Statement

(Rs crore)
FY05

FY06

FY07E

FY08E

Sales
414.57
534.88
673.48
859.90
.................................................................................................................................................
Pre
tax
profit
from
operations
86.92
133.50
176.8
627.35
.................................................................................................................................................
Depreciation
48.85
74.66
93.09
111.77
.................................................................................................................................................
Expenses
(deffered)/written
off
-1.48
8.12
0.00
0.00
.................................................................................................................................................
Pre
tax cash from operations
134.29
216.28
269.95
339.12
.................................................................................................................................................
Other
income/prior
period
ad
11.90
8.48
12.10
16.05
.................................................................................................................................................
Net
cash from operations
146.19
224.76
282.05
355.17
.................................................................................................................................................
Tax
-8.60
-14.67
-18.90
-24.34
.................................................................................................................................................
Cash
profits
137.59
210.09
263.15
330.83
.................................................................................................................................................
Increase
in
current
liabilities
68.53
-5.26
-5.24
21.70
.................................................................................................................................................
(Increase)
in current assets
65.03
-38.75
-62.40 -113.43
.................................................................................................................................................
(Increase)
in
fixed
assets
-115.19
-163.71
-81.68
-154.50
.................................................................................................................................................
(Increase)
in investments
-0.17
-112.64
-15.80
-49.37
.................................................................................................................................................
(Increase)
in
loans
&
advances
7.81
-19.42
-101.94
1.98
.................................................................................................................................................
Cash
flow from financing activities
-139.86
181.04
72.77
0.00
.................................................................................................................................................
Opening
cash
balance
50.77
33.05
88.73
162.06
.................................................................................................................................................
Closing cash balance

33.05

88.73

162.06

205.28

FY05

FY06

FY07E

FY08E

Ratios
Sources of funds
.................................................................................................................................................
EPS
14.17
15.93
21.28
27.41
.................................................................................................................................................
Book value per share
71.69
117.81
148.20
175.61
.................................................................................................................................................
SG&A exp/Sales
42.77
35.51
37.03
35.49
.................................................................................................................................................
Employee exp/Sales
21.69
22.83
22.82
25.07
.................................................................................................................................................
Market cap/Sales
3.78
3.68
2.92
2.29
.................................................................................................................................................
Price/Book value
3.43
2.09
1.66
1.40
.................................................................................................................................................
Operating margin (%)
38.22
43.25
41.95
41.30
.................................................................................................................................................
Return on Net-worth
19.58
13.52
14.36
15.61
.................................................................................................................................................
Debt/equity
0.52
0.41
0.01
0.01
.................................................................................................................................................
Fixed assets turnover ratio
1.14
1.18
1.53
1.78
.................................................................................................................................................
Debtors turnover ratio
1.43
1.64
1.75
1.75
.................................................................................................................................................
Attractive valuations

Enterprise value
1796.31 1871.65 1782.51 1689.92
.................................................................................................................................................
EV/EBIDTA
10.34
8.09
6.31
4.7

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RATING RATIONALE
ICICIdirect endeavours to provide objective opinions and ecommendations. ICICIdirect assigns ratings to its stocks
according to their notional target price vs current market price and then categorises them as Outperformer,
Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and the notional target
price is defined as the analysts valuation for a stock.
Outperformer: 20% or more;
Performer: Between 10% and 20%;
Hold: +10% return;
Underperformer: -10% or more.

Harendra Kumar

Head - Research and Content

harendra.kumar@icicidirect.com

ICICIdirect Research Desk

ICICI Brokerage Services Limited,
2nd Floor, Stanrose House,
Appasaheb Marathe Road,
Prabhadevi, Mumbai - 400 025
research@icicidirect.com

The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,
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PH/27/11/06

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