Whart are the long-term prospects of Rolta India ?
-Pawan Dubey
Rolta India is a mid-cap IT company that provides services and solutions in domains such as geographical information system (GIS), engineering design and automation. The company derives 60 per cent revenue from the domestic market, especially from the defence and security markets. In future India will spend a lot of money on upgrading its defence technologies, which will spell opportunities for Rolta.
The company’s management expects the share of intellectual property (IP)-based revenue to increase to more than 20 per cent over next two-three years from the current 15 per cent.
A key concern for the company is the deterioration in free cash flows. In FY11 it had negative free cash flow of Rs 122.5 crore due to expenditure incurred on acquisitions. Repayment of foreign currency convertible bonds (FCCB) worth $135 million is due in June 2012. Refinancing the FCCB through external commercial borrowings (ECB) will not be easy in the current environment.
The stock is currently trading at a discount to its five-year median price-to-earnings ratio of 7.5. Over the past five years, its EPS has grown at a CAGR of 23.4 per cent, which gives it a price-to-earnings to growth (PEG) ratio of 0.1. Its debt-to-equity ratio stood at 0.8 for FY11. One needs to take note of the concerns regarding FCCB repayment and negative fee cash flow before investing.
This article was originally published on February 15, 2012.
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