Buy NIIT; target of Rs 69: Angel Broking

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Buy NIIT; target of Rs 69: Angel Broking

Angel Broking is bullish on NIIT and has recommended buy rating on the stock with a target of Rs 69 in its July 22, 2011 research report.

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Angel Broking is bullish on NIIT and has recommended buy rating on the stock with a target of Rs 69 in its July 22, 2011 research report.

"NIIT reported a decent performance for 1QFY2012, which was in-line with our expectations. Revenue growth was driven by all businesses, but operational performance was dented due to the SLS business, which posted a 472bp yoy dip in EBITDA margin. We have valued NIIT on an SOTP basis, arriving at a target EV/EBITDA of 4.3x on FY2013E consolidated EBITDA of Rs 214.4cr, and have added the company's stake in NIIT Technologies (with a holding discount of 25%). Consolidated revenue came in at Rs 321cr, up 15.5% yoy. Revenue from ILS, SLS and CLS businesses increased by 15.7%, 5.0% and 18.4% yoy to Rs 177.8cr, Rs 40.3cr and Rs 163.0cr, respectively. Blended EBITDA margin declined by 75bp yoy to 10.3% due to a 162bp and 472bp yoy margin decline in ILS and SLS businesses to 9.6% and 12.2%, respectively. However, the CLS segment posted a 102bp yoy increase in its EBITDA margin to 8.9%."

"The hiring environment in the Indian IT sector is strengthening, as indicated by Indian IT players such as Infosys and TCS aiming to collectively hire ~1,05,000 people in FY2012. Thus, we expect ILS to record strong growth of 16% yoy in FY2012, with strengthening of the hiring environment expected to result in demand for vocational courses. With developed economies such as the US returning to growth, we expect discretionary spend related to training outsourcing, learning products and managed training services to turn robust and expect 7% yoy growth in the CLS business. At the CMP, the stock is trading at EV/EBITDA of 4.0x FY2013E EBITDA, but the stake in NIIT Technologies provides for a strong upside. Hence, we maintain Buy on the stock with a target price of Rs 69," says Angel Broking research report.

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