With as many as eight new technology acquisitions in the last four years, IT and defence modernisation solutions major Rolta has been sharpening its focus on homeland security and satellite imagery. Last week, the company was accused of offering its services to Indian defence forces well after its software licensing contract had expired. In an exclusive interview with Beryl Menezes, Rolta’s founder, chairman and chief executive, Kamal K Singh, delineated the company’s stance on the issue and the way forward. Edited excerpts.
Do you still maintain that the recent controversy is baseless?
The statements against us are false, baseless claims, created with malicious intent, possibly by our competitors, since defence is a very sensitive space.
We have, however, updated letters of appreciation regarding upgrades received till April 2011, and all our licensing contracts are up to date.
So, how is defence modernisation coming along?
The government has taken a very conscious decision in the last five to seven years to support Indian industry. Thus, from global projects, large defence programmes have now been renamed as ‘Make India’ programmes. An India-led consortium can get an international technology partner to aid in transfer of technology and knowhow, to customise global equipment for Indian needs. One of the main areas of focus under this would be homeland security, which has come into great relevance, especially after 26/11. For the next ten to 15 years, this will be our main focus area. In five to seven years, we believe this space will generate very good results. Another area of focus will be ‘Digital Soldier’, which aims to transform the Indian army, making it intelligent and well-equipped to meet 21st century requirements which are very IT-centric and knowledge-based.
You had acquired several intellectual properties (IPs). Are they profitable?
Our business model has changed - we are using lots of IP solutions today. These are leading our revenues. The combination of IP and traditional services has improved profit margins, visibility and value chains. According to our estimates, the IPs have increased our profit margins by 300-400 basis points, and currently 20-25% of our revenues come from IPs. In two to four years, we expect IPs to contribute to a 40-50% increase in revenues.
Coastal security and geospatial solutions - what about them?
Homeland security requires an integration of local and coastline security. There is a very big market opportunity here. In recent times, we have been able to fine-tune our offerings in this space using maritime security, integrated coastal security and other technology used abroad. This has led to a response time of a few seconds, putting us on par with the rest of the Western world. The companies we acquired abroad in recent years are enabling these solutions, and helping us to customise them for the Indian market at our R&D centres in India.
What about nuclear power?
We are working very closely with nuclear power plants like the Nuclear Power Plant Organisation, BARC (Bhabha Atomic Research Centre) and others, where we provide design and manufacturing of components and units at various levels. We are also one of the companies working on an international nuclear power programme. Owing to the non-disclosure agreement, I cannot say more on this now. Going forward, we view this space as a good revenue opportunity, but it will take five to ten years to pick up in India, due to various concerns. However, when it does, we expect it to contribute approximately `50 crore to 100 crore to our annual revenues, and it will become a major focus area.
What is your FCCB (foreign currency convertible bonds) repayment position?
FCCBs are due in June (2012). Meanwhile, we are organising ECBs (external commercial borrowings) through a consortium of banks. We are confident that we will tie it up by mid-January (2012), according to the due date of redemption, without any hassles. Due to the weakening rupee, we expect our foreign exchange borrowings to be hit in the next quarter, resulting in this amount being the same as last quarter - that is, Rs25 crore. However, this will not have any effect on our operating margins or cash outflows. As the rupee becomes better, this short-term forex loss will be converted to profits.
Does the economic situation worry you?
Owing to the ongoing economic situation, the next one to two years will remain challenging. That said, since 68% of our focus is on the domestic front, we believe new defence areas like homeland security represent a big business opportunity and a large market, which will help improve our penetration in local market, and will provide an increase in domestic revenues. We predict a 12-14% range of growth in (fiscal year) 2012-13, as compared to the 25-30% growth two years ago. Thus we see top-line and bottom-line growth being affected negatively due to the global economic slowdown.