Mar 11, 2013, 06.00 PM IST | Source:

Buy NIIT Technologies; target Rs 385: Dolat Capital

Dolat Capital is bullish on NIIT Technologies and has recommended buy rating on the stock with a target price of Rs 385 in its March 11, 2013 research report.

Dolat Capital is bullish on NIIT Technologies and has recommended buy rating on the stock with a target price of Rs 385 in its March 11, 2013 research report.

"NIIT Technologies is witnessing incremental traction for large deals across geographies and verticals. Travel & Transportation seems most robust among all and banking weakest of all. Insurance/reinsurance business is reviving with incremental acceptance of its latest offering - ipf3 (average license ticket size if over USD 10mn), and may see reversal in trend by Q1FY14.

The biggest margin dragger for NIIT Tech has been the GIS business that went into losses in Q3 (-7% operating margin). Q4 has traditionally been the best quarter for the segment and would see strong revenues and margin recovery, as it has concluded the cost overrun project during the quarter. The recovery in GIS would also support margin gains gradually in Q4FY13 and Q1FY14.

NIIT Tech has been able to steadily add new order intakes quarter after quarter (USD 712mn over last 7 quarters) giving strong visibility comfort. It is close to conclude two large deals in current quarter which would help it maintain the USD 100mn+ quarterly order intake run rate. Currently, it has total 12M executable order book of about USD 242mn. We expect 18%+ growth in topline/ PAT for FY13-FY15E.

NIIT Tech has witnessed 70bps OPM decline in 9MFY13 on account of weak GIS profitability, decline in NITL revenues and certain onetime transition cost on Morris deal. We believe OPM trend would pick up as GIS overrun concludes, NITL revenues get better and cost items normalises. We have built in 60bps gains in OPM at 14% over Q4FY13-Q4FY15.

NIIT Tech has been one of the best performing mid cap companies in FY12 both on financial as well as stock returns but is still available at attractive valuations of 6x on its FY15E earnings of Rs 48 per share. We remain positive on the stock in view of sustained improvement on operating metrics and strong business visibility amidst uncertainty with a target price of Rs 385 valued at 8x of its FY15E earnings," says Dolat Capital research report.

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