Rolta India Limited
R e s u l t U d a t e
Khandwala Securities Limited
For private circulation only
Vikas Building, Green Street, Fort, Mumbai 400 023.
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Event Update January 24, 2008
CMP: INR 541 Target: INR 660 (cum bonus) BUY
BSE Sensex 17,594S&P Nifty 5,203BSE IT 3,631BSE Code 500366NSE Code ROLTABloomberg Code RLTA@INReuters ROLT.BO52 Week High (Rs) 780.052 Week Low (Rs) 276.3Equity (Rs Mn) 801.4Market Cap. (Rs Mn) 43,352
Shareholding Pattern (%):
Foreign 38.91Institutions 2.73Corporate 2.37Promoters 40.67Public & Others 15.32
Total: 100.00Returns (%):
1 Month 21.553 Months 0.131 Year 61.33
Relative Price Chart:
50100150200250
J a n - 0 7 F e b - 0 7 M a r - 0 7 A p r - 0 7 M a y - 0 7 J u n - 0 7 J u l - 0 7 A u g - 0 7 S e p - 0 7 O c t - 0 7 N o v - 0 7 D e c - 0 7
RoltaBSE ITSensex
Source: Comline Products
Analyst: Dipesh MehtaEmail:
dipesh@kslindia.com
Rolta announced the acquisition of Broech Corporation, doing business as “TUSC”, IT Consulting Company specializing in ERPapplications as well as Database and Business Intelligence solutions,based on Oracle technologies.
TUSC Business Overview
TUSC is headquartered in Chicago, having over 160 consultants acrossthe US. Established in 1988, TUSC has served over 2000 customers indiverse sectors like Utilities, Energy, Engineering, Manufacturing,Finance, Insurance, Retail, Government, Healthcare, Services,Transportation, and Technology.TUSC holds an expertise in high-end consulting for large-scale ERPapplications, Fusion Middleware, Business Intelligence and coreDatabase Technology. TUSC is one of only a handful of companiesworldwide that have the highest level of Partner certification for bothERP and Oracle Technology. TUSC currently has five “Oracle Master”level consultants on its staff, giving the company an unmatchedreputation globally for outstanding expertise in Oracle technologies.
TUSC Financial Details
TUSC is a profitable company and its 2007 revenues were in excess ofUSD 48 million, with a CAGR of more than 30% over the past 4 years.TUSC operates at ~11% EBIDTA margin and ~7% net margin. Over50% of revenues are generated from repeat business.
Deal Structure
The consideration for this transaction is about USD 45 million,including escrows and earn-outs. The upfront cash payment will beUSD 36 million and the USD 6 million earned-out will be payable innext 2 years. The consolidation is expected to be over within one monthand so company is expected to consolidate TUSC for about two monthin March 2008 quarter. As a wholly owned subsidiary of Rolta, TUSCwill continue to lead its operations from headquarters in Chicago, USA.
Deal Valuation
Rolta has paid ~1 time revenue and ~9 times EBIDTA of FY2007. Themanagement expects this transaction to be immediately accretive toshareholder value in the current fiscal year ending in June 2008.
Rationale for the acquisition
This acquisition will bring to Rolta a strong portfolio of products andcustomers; improved access to complementary markets and industryservice lines; and strengthen its global delivery model; whilecontinuing to leverage its existing core competencies in the GeoSpatialand Engineering domains.The three founders of TUSC, Rich Niemiec, Joe Trezzo and BradBrown, will continue to lead the company. With each having over 20years of experience, this management team brings a wealth ofexperience to Rolta.
Khandwala Securities Limited
Khandwala Research Rolta India Limited January 24, 2008 2
TUSC’s offerings are focused towards mission-critical applications, providing significant opportunities in the Roltacustomer base, especially in the Engineering and Utilities sectors because of a workflow that requires the integration ofDesign, Engineering, Mapping and ERP. The continued development of Fusion Applications by Oracle presentsanother significant opportunity for this business.While today TUSC operates completely on a US based delivery model, by leveraging Rolta’s offshore infrastructureand domain expertise, the Company expects TUSC’s businesses to achieve better margins, higher scalability, andprovide greater value to customers worldwide.
Valuation:
We believe acquisition would be beneficial to Rolta in medium term as combined offering enable Rolta to provideenterprise level solution to their clients. Acquisition also provides cross-selling opportunities, of their respectiveservice offerings by both companies, to existing clients. TUSC has also developed and owns a broad range of IPRs,which Rolta can monetize and offer as different products (like Periscope – advanced data mining and virtualizationtool). This strategy could give some non-linearity in revenues helping it to manage margins against rising wage costand rupee appreciation. We expect Rolta’s revenue and net profit to grow by 44% and 35% CAGR respectively over FY2007-2009. The stock is currently traded at ~15x FY09E earnings. We remain positive about the growth potential in thebusiness, considering recent correction in market price,
we revised our recommendation to BUY fromACCUMULATE on the stock with a 12-months target price of Rs. 660 at 18x FY2009E earnings
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