We lower our FY12 estimates by 2% and cut our PO (price objective) Rs 220 (Rs 230) to factor the pushout in deal closures in the engineering division (about 25% revs) to due to the slower-than-expected capex in the oil & gas segment. The stock could correct in the near term on likely cautious revenue guidance. However, we view that as an attractive buying opportunity and retain Buy, given valuations at 9x FY11E for 22% earnings CAGR (compound annual growth rate) (FY10-12E) is attractive. We see 21% earnings growth in FY11, driven by robust order intake in the past three quarters and strong demand momentum in GIS (geospatial information systems) and IT solutions.

Slowdown in engineering; guidance could be cautious: Rolta derives 25% of its revenues from the engineering segment. It provides detailed engineering design services to oil & gas (45% exposure) and power firms (50%). With new capacity announcements by refiners delayed, deal closures are taking longer than anticipated. We believe management guidance for FY11 revenues could bake in cautiousness and fall short of street expectations of 20% revenue growth; we forecast 17% YoY (year-on-year) revenue growth.

Strong growth trajectory in GIS, IT; margins to improve: Despite deal pushout in the engineering segment, we forecast 22% earnings CAGR (FY10-12) driven by: (i) strong traction in GIS led by increasing spends by the Indian defence sector and state governments in India/Middle East; (ii) steady growth in IT solutions led by ERP (enterprise resource planning); and (iii) improving margins given the focus on more IP-led solutions. The order book provides about 75% revenue visibility for FY11. Finally, we could also see a trigger from large defence deals where Rolta Thales JV is well-placed to benefit from government spends on defence modernisation.

Robust growth despite slowdown in engineering: We tweak down our FY12 earnings estimate by 2% and cut our PO to Rs 220 (Rs 230) to factor the pushout in deal closures in the engineering segment (25% revs) due to slower-than-expected capex spends in the oil & gas segment. The stock could correct in the near term on the likely cautious revenue guidance, which would create more entry opportunities.

Engineering order intake to remain subdued: Following three quarters of robust order intake, we believe Q4 orders in the engineering segment will likely remain subdued. Rolta derives 25% revenues from this segment wherein it provides detailed engineering design services to oil & gas (45% exposure) and power companies. With new capacity announcements by refiners delayed, order flows are taking longer than anticipated.

With delay in new capacity announcements by refiners, deal closures in the engineering segment are taking longer than anticipated. We believe management guidance for FY11 revenues could prove cautious and fall short of street expectation of 20% revenue growth.

Strong growth trajectory in GIS, IT segments: Despite the near-term slowdown in the engineering segment, we forecast earnings growth of 21% in FY11, driven by two indicators.

One, strong traction in other segments, ie. GIS and IT solutions. In the IT solutions segment, Rolta continues to see strong traction from ERP implementation by utility companies. Two, strong revenue visibility of 75%, given robust order intake reported in the past three quarters.

Forecast 250 bp margin improvement: We forecast Ebit margins to improve 250 bp to 22.6% in FY12E driven by more focus on IP-based solutions and increasing contribution of the GIS segment (higher margins) to revenues. IP-based solutions currently account for 7-8% of revenues and the management expects this to increase to over 20% in two-three years.

Forecast 4-5% QoQ (quarter-on-quarter) growth in Q4: For Q4, we forecast about 5% QoQ growth in revenues driven by strong growth in all key segments ie, GIS (50% revs), IT (25% revs), and engineering services.

We expect margins to remain stable during the quarter. However, higher depreciation (Gurgaon facility) could lead to lower PAT growth. We forecast 4.5% QoQ growth in PAT in Q4.

?Bank of America Merrill Lynch