Rolta India (Rolta) reported weak numbers for Q3FY09. The revenues declined by 8.3% sequentially to Rs3.3bn and EBITDA declined sequentially by 15.5% to Rs1 billion (without amortization of MTM losses, EBITDA would have declined by 11.4%).
Reported net profit stands at Rs1,332 million as against Rs490 million in Q2FY09, primarily due to a write-back of MTM losses of Rs840m on outstanding FCCBs.
Performance across all the segments was weak. GIS grew by a meagre 0.9%, whereas Engineering and EICT segments declined sequentially by 17.7% and 11.2%, respectively.
Even EBIT margin declined in all the three segments (GIS (-) 230bps, Engineering (-) 440bps and EICT (-) 360bps). The weak performance was also visible in the company’s order book, which declined sequentially by 2.5% to Rs15.5 billion.
The Engineering segment that saw a sequential decline of 10.1% and the EICT segment led a downfall in the order book. However, order book in GIS still managed to grow by 4.4% sequentially.
Rolta has opted to write-back MTM forex losses (of Rs840 million) provided earlier in the first nine months of the current financial year.
From the current quarter, the company has started amortizing the whole MTM liability spread over the next 12 quarters. Per quarter amortization amount would be close to Rs120m.
We expect Rolta’s revenue to grow at a CAGR of just 5.3%, whereas its earnings are expected to show a 5.5% de-growth over FY09-11.
Our numbers factor in interest (net of tax) on its FCCB bonds. We believe that the recent acquisitions outside India, while good in the long run, have diluted its attractiveness as domestic (India) growth story.
We downgrade the stock to REDUCE at the target price of Rs82.