Hold NIIT; target of Rs 32: ICICIdirect.com

ICICIdirect.com has recommended hold rating on NIIT with a target of Rs 32 in its October 25, 2012 research report.

“NIIT, deferred IT-ITeS hiring led to 17% YoY declined in ILS (54% of the total) revenues. IT training enrolments declined 18% YoY. EBITDA halved YoY to | 15.2 crore (10% EBITDA margins) vs. | 37.5 crore (21%) in Q2FY12 led by operating leverage (| 21 crore), adverse revenue mix (| 6.1 crore), annual increments (| 1.2 crore), cost inflation (| 0.6 crore) partly offset by cost optimisation initiatives (| 6.7 crore). For the full year FY13E, the management commentary suggests ILS revenues could decline ~10-12% while EBITDA margins could fall by ~800 bps from 16.1% in FY12.”

“On a continuing basis, CLS revenues grew 31% YoY while EBITDA margins improved 864 bps YoY. CLS revenue growth was led by managed training services (MTS) which grew 53% YoY and contributed 71% of CLS revenues. The management indicated that the CLS business continues to perform well. NIIT has participated in a number of requests for proposal (RFP’s) with atleast two in their favour.”

“NIIT reported its Q2FY13 numbers which were below our estimates. Revenues came in at Rs 279.1 crore vs. our Rs 294.5 crore estimate led ILS weakness. Reported EBITDA of | 26.1 crore (9.4% margin) missed our Rs 35.6 crore (12.1%) estimate by a wide margin. PAT (including associate profit) of Rs 11.6 crore (core operations Rs 1.6 crore) was also lower than our Rs 22.6 crore (Rs 10.5 crore) estimate. Though CLS performance improved sequentially, overall earnings were let down by 1. ILS business which declined 17% YoY as weak hiring environment in the IT sector led to 18% YoY decline in enrolments to 1,47,000, & 2. SBS business where EBITDA losses were higher. NIIT’s feeble revenue growth and execution continues to dictate the valuation multiple and our hold rating,” says ICICIdirect.com research report.

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