Back Ground

Rolta have clients in 35 countries and have successfully completed number of high value projects. However, unlike other medium sized IT companies more than 60% of their revenues are from the domestic Indian market. Importantly Rolta has achieved significant presence in the Indian Defense sector. This helps the company to tide over the declining realization in the exports as the rupee has been gaining in external value in the past 5 years. The rupee is expected to gain in as much as the inbound foreign currency remittances are growing more due to the investment in India opening up a large market for most the investing companies. 

Industry

IT industry in India is growing at CAGR of more than 40%. In the last two years the growth has slow down more due to the appreciating Indian rupee. But the growth momentum has not weakened. The sizeable portion of the population is young. The education infrastructure is in place reach all eligible student population. The stream of young graduates from various discipline are getting into IT industry. The industry majors have gone about acquiring small companies abroad to tap the niche market as also add to their talent pool. Many of them have recruited capable hires broad basing their skill levels. Their accent has also been to move up in the value chain. IT consulting and product customization are two areas where the revenues are in the rise.

GIS is another field where the less talented amongst graduate or diploma holders form a major part of the work force. India has many companies that produce quality mapping or cutting edge engineering designs for various applications.

 Quarterly results

 The company has announced the quarterly results recently.

The financial figures compare with the previous as shown in the table below: 

The net profit has grown by 47.10% on year on year basis, which represents 11.90% on quarter on quarter basis. The income has also grown by similar percentage, 47.80% to be specific. The earnings per share amounted to Rs. 3.76 

The other operational Highlights include:

Rolta has bagged the order from North American Telecom and European Utility majors. It has established a team in India to supplement product development for Orion, its subsidiary in Canada.  The subsidiary in France, Rolta Thales Limited (RTL), the Company’s joint venture with Thales, France, also grew substantially. The engineering and design department also posted a good growth. Further Stone & Webster Rolta Limited (SWRL) started working on a prestigious multi-year engineering & procurement project from Exxon Mobil. The Company added more than 300 employees during the quarter. The company also strengthened the internal training programs to update the manpower.

How does Rolta compare with IT Majors?

The comparison with the IT majors is tabulated below:
 

The major strengths of Rolta compared to the IT majors are that

• It is a mid sized company and can easily improve upon its performance having to manage less complexities
• It has successfully developed in niche area of engineering design and GIS. Indian defense is one of its major clients.
• It has a growing market in infrastructure where the capital spend will include GIS mapping to better use the assets created.
• Strategic investments and partnerships in small companies have made available niches to Rolta to exploit.
• It has been named amongst 200 best companies by Forbes.

Summary

A mid sized company with a good track record and has managed to dominate the niche it has created in GIS and engineering services. The small base of work force at 4500 allows managing the growth more evenly. The company is bound to be unaffected by the current stagnation in US economy or the contracting global trade as its major clients are India based. This stock may be a good investment at the start of a global slow down.