BNP Paribas Securities keeps BUY on Rolta

BNP Paribas Securities keeps BUY on Rolta
Comment E-mail Print Share
First Published: Fri, Jan 02 2009. 09 28 AM IST

Updated: Fri, Jan 02 2009. 09 28 AM IST
Rolta has acquired Chicago-based Piocon Technologies, Inc. Piocon provides Oracle-based enterprise and business intelligence solutions to clients in the oil and gas refining, manufacturing, healthcare, government and other industries.
While the deal size itself is small and is unlikely to have an immediate material financial impact on Rolta, we are impressed by the company’s current strategic direction.
This is Rolta’s fourth acquisition over the past year or so, three of which have been Oracle solution providers.
Over 80% of Rolta’s customers use Oracle databases, and Rolta continues to bolster its core mapping and design services portfolio with asset management tools from its acquisitions, that will enable it to gain a stronger foothold within its key accounts.
While financial details of the deal were not disclosed, we estimate that the consideration was ~$15 million and the acquisition to be marginally EPS accretive for Rolta. Management expects a cumulative $100 million in revenue from Piocon over the next 3-4 years.
The company believes the opportunity for solutions such as those provided by Piocon to be about $1 billion annually.
Piocon operates at ~20% EBITDA margin, which management expects to improve by increasing the offshore proportion of its revenue over the next few years.
Rolta recently raised about $22-23 million in foreign currency debt, part of which was used to fund the acquisition.
We remain positive on Rolta because the company stands out within its peer group with its niche market leadership, defensive-end market exposure, and high-revenue visibility.
Our recent interaction with management suggests the company is on track to meet its 38-40% revenue growth guidance for FY09.
We continue to see value in the shares that trade at an inexpensive 6.3x FY09E P/E, and reiterate our BUY rating.
Our DCF-based target price of Rs220 implies a 9.9x FY10E P/E on an FY08-11E EPS CAGR of 21.9%.
The key risks to our call are an adverse impact on orders beyond our expectation and investor aversion to mid-cap stocks due to the difficult macro-economic environment.
Comment E-mail Print Share
First Published: Fri, Jan 02 2009. 09 28 AM IST
More Topics: Stock Ideas | Money Matters | Equities |