Accumulate NIIT Technologies; target Rs 325: Emkay
Emkay Global Financial Services is bullish on NIIT Technologies (NIIT Tech) and has recommended accumulate rating on the stock with a target price of Rs 325 in its January 15, 2013 research report.
January 17, 2013 / 10:36 IST
Emkay Global Financial Services is bullish on NIIT Technologies (NIIT Tech) and has recommended accumulate rating on the stock with a target price of Rs 325 in its January 15, 2013 research report.
"NIIT Tech’s Dec’12 qtr revenues at Rs 5,144 mn(+2.9% QoQ) came in a tad ahead of expectations (constant currency revenue growth of 4.4% QoQ), however margins declined by ~120 bps sequentially to 15.8%, ( lowest in co’s reporting history and short of our expectations of ~100 bps decline). Op margins were impacted adversely by cost overruns in GIS segment (margins at -7% V/s ~20%+ historically), sluggish growth in NIIT Insurance (Room Solutions) and transition costs related to managed services business from Morris. Profits at Rs 561 mn (+30% QoQ) missed Emkay est a little (Emkay est Rs 583 mn) on account of lower than expected forex gains. While Headcount addition continued to remain decent along with steady order intake at ~US$ 83 mn, we note that order books (executable over next 12 months) have remained stagnant around US$ 240-250 mn (a good barometer of revenue growth ahead) for the past 5 quarters now.After holding margins in a narrow range around 19-20% through a prolonged time frame, NIIT Tech’s margins have slipped through FY11-13E as revenue growth has accelerated driven by higher proportion of System Integration revenues along with certain asset takeover deals. NIIT Tech’s margin performance has been impacted adversely further by cost overruns in some GIS projects and sluggishness in the NIIT Insurance business. Management expects an improvement in margins ahead driven by increase in profitability at GIS (profitability at -7% V/s historical margins of ~25%) as well as pick up in revenue/license growth at NIIT Insurance/Room. Tweak FY13/14E earnings lower by 2%/3% respectively, retain.We tweak our FY13/14E earnings lower by 2/3% to Rs 35.6/39.4 respectively driven by lower margin assumptions (build in margins at 16.4%/17.2% V/s 17.4% earlier). Valuations at ~8x/7x FY13/14E P/E remain inexpensive, however improvement in margin trajectory would need to preclude an improvement in valuations in our view. Retain ACCUMULATE, TP unchanged at Rs 325," says Emkay Global Financial Services research report.FIIs holding more than 30% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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