Prabhudas Lilladher is bullish on NIIT Technologies (NIIT Tech) and has recommended buy rating on the stock with a target price of Rs 350 in its January 15, 2013 research report.
"NIIT Tech reported revenues/margin above PLe/Consensus expectation. However, on the margin front, it disappointed due to the weakness in GIS and insurance business. Improving revenue momentum in GIS, project ramp-up in Morris would give the much needed revenue impetus along with margin expansion in CY13.
The company reported revenue growth of 2.9% QoQ to Rs5,144m (PLe: Rs5,126m, Cons: Rs5,035m) and 4.4% on constant currency basis. EBITDA margin contracted by 115bps to 15.8% (PLe: 16.5%, Cons: 16.1%), mainly due to softness in GIS, Insurance business and Transition costs associated with a large engagement. However, on account of increase in other income (revaluation of foreign currency assets & liabilities), PAT improved by 30% QoQ to Rs560m (PLe: Rs 592m, Cons: Rs 545m).
The cost associated with large project from Morris-related transition has impacted margin by 40bps in the quarter. We expect revenue ramp-up in Q4FY13. GIS business delivered operating margin of -7% compared to traditionally ~20%+ due to cost over-run in a APDRP contract. The management expects margin to be recouped by Q1FY14, as Q4 is seasonally a strong quarter for GIS.
Conference call highlights: 1) Margins declined significantly in GIS business in Q3FY13~(7)% (Q2FY13~1%, Q1FY13~15%) 2) Q3FY13 Revenue – Room: Rs337m, Morris: Rs303m, Projecta: Rs144m, GIS: Rs197m, CCTNS: Rs266m 3) Hedges: US$47.9m (@Rs56.71) 4) Sabre BPO revenue: ~Rs52m (margin: ~8-9%) 5) BFS vertical will continue to remain soft 6) Non-linear revenue: 21% 7) DSO: 76days 8) FCF for Q3FY13: ~Rs550m 9) Volume: US: 1%, Europe: 5.7% QoQ 10) Added four new clients, CCTNS pilot phase went live in the last week of December.
NIIT Tech has made investments in the business and now is the time to reap. Positive IATA commentary, project ramp-up in GIS, and Morris ramp-up would give revenue growth with margin impetus. NIIT Tech is currently trading at 7.2x FY13 estimates with EPS CAGR of 13% (FY12-14E). We retain our 'BUY' rating with target price of Rs 350," says Prabhudas Lilladher research report.
Bodies Corporate holding more than 50% in Indian cos
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