Accumulate NIIT Tech; target of Rs 325: Emkay

Emkay Global Financial Services is bullish on NIIT Technologies and has recommended accumulate rating on the stock with a target of Rs 325 in its October 17, 2012 research report.

“NIIT Tech’s Sep’12 qtr operating performance met expectations with a 6.5% sequential revenue growth to Rs 5001 mn with margins improving by ~100 bps QoQ to 17% aided largely by growth leverage and currency depreciation. Profits at Rs 431 mn (-25% QoQ) missed expectations albeit impacted adversely by higher than expected forex translation losses of ~Rs 150 mn. HC addition picked up after a relatively sombre addition in June’12 qtr and company expects similar HC addition ahead. NIIT Tech also won orders worth US$ 93 mn (V/s US$ 80 mn in June’12 qtr) taking the total order book executable to ~US$ 253 mn (+9% YoY). Top 5/10 clients grew by 13%/16% with no of US$ 10 mn+/US$ 5 mn+ clients increasing by 1/3 each to 9/18 respectively.”

“NIIT Tech remains confident of growth from the Travel Segment (~40% of revenues) however sounded a tad cautious on pricing/margins ahead driven by the weak macro environment (albeit pricing has been fairly stable until now) and transition of recently won deals. Management indicated that the economic uncertainty was also impacting license revenues for Room Solutions which also reported a 12% QoQ decline in revenues along with margins down by ~400 bps sequentially to 19%. NIIT Tech management also indicated some sluggishness in the GIS business and expects some recovery from the segment from Q4FY13 onwards.”

“While our revenue estimates remain largely remain unchanged, lower margin assumptions drive a 3%/1% cut in FY13/14E earnings to ~Rs 36.4/40.5 (V/s Rs 37.5/41 earlier). We retain ACCUMULATE on NIIT Tech with a revised TP of Rs 325( V/s Rs 340 earlier) on inexpensive valuations at <8x FY13 P/E with ROE’s of 20%+ and Dividend yield of ~3%,” says Emkay Global Financial Services research report.

FIIs holding more than 30% in Indian cos

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