Rolta sees benefits with the higher budgetary outlay for the defence

Geospatial information systems (GIS) solution provider Rolta India Ltd expects to benefit in a big way from the higher budgetary outlay for the defence sector.

Although the finance minister has increased the defence outlay for 2008-09 from Rs 96,000 crore to Rs 105,600 crore, a 10% increase, in capital expenditure there is actually an increase of 27% from Rs 37,000 crore to Rs 48,000 crore. This, the company feels, will be a major source of its growth.

According to Hiranya Ashar, CFO, Rolta India Ltd "The capital expenditure increase of 27% is pretty encouraging for us as most of our offerings on mapping and GIS are covered by defence capital expenditure."

Moreover, the finance minister’s statement that the ministry is ready to cover any increase in capital expenditure spells additional good news for technology providers such as Rolta. This year the defence ministry’s spending on IT will touch Rs 4,000 crore.

"We are looking at the Rs 150 crore GIS-specific work from the defence sector," said Ashar. The company will bank on its joint venture with France-based Thales for the necessary technology transfer.

Industry analysts said the infrastructure-specific image of the company will also help in its growth given that the segment is growing at 28%.

Suveer Chainani, an analyst with Macquarie Research, said: "Rolta operates in a demand environment similar to that of an engineering and construction company. At the same time it has a high-margin profile similar to an IT services company."

In its September 2007 report, Macquarie Research called Rolta an "optimal mix of L&T and Infosys, all rolled into one".

There are other reasons for the new image of Rolta, Chainani said. "Rolta offers engineering design and geospatial information services to clients in the Indian infrastructure, oil & gas, power and defence sectors, and unlike its peers in the IT industry, it derives about 60% of its revenues from India," he said.

Meanwhile, Rolta has applied to the defence ministry for being included in the Raksha Udyog Ratna (RUR) category. The RUR status enables a company to be treated on a par with defence public-sector enterprises such as HAL.

A company with RUR status can access foreign technologies and avail themselves of up to 26% foreign direct investment. But that status looks distant for Rolta due to a clause that a company has to have revenues of Rs 1,000 crore for the past 10 years.

The company earned revenues of Rs 711 crore last fiscal and has given a guidance of Rs 1,000 crore for fiscal 2008.