Accumulate NIIT Tech; target of Rs 450: Dolat Capital

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Dolat Capital`s research report on NIIT Technologies “NIIT Technologies, Revenue in reported currency were up 2% QQ at Rs 5.88 bn inline with our estimate of Rs 5.88bn. Revenues in constant currency terms were down 0.8% QQ as completion of the CCTNS project led to an impact of over 2% on the total revenues. OPM declined 40bps QQ despite Fx tailwind on weak volumes, transition cost on projects and lower utilization.” “The company has been regularly facing challenges in its key accounts (three cases in last six months) and other sensitivities in business segments (Government, GIS, NITL, Projecta) which has been leading to constant swing in its earnings and expectations, which the company is trying to address through revisiting its strategy on incremental focus on IMS service line, US market and TTL vertical and chasing one large account a quarter. However, we believe the company has a large vacuum created by sharp exit from the Indian government project which would mean 20%+ growth in international business in next fiscal to ensure at par performance with peers in FY16 and thus need couple of quarters to build up and support the momentum thereon. We have thus realigned our estimates building 9/4% CAGR in revenue/EPS over FY14-16E respectively.” “The result has been disappointing as it witnessed slower than expected rampup on troubled accounts, modest order intake at $103mn and sharp decline in the Government business that negated the gain in the international business (up 5.6% QQ). The management has indicated volume traction Q4 onwards which puts into risk of underperformance over peers even for FY16. We cut our estimates on likely slower recovery with a Marketperformer view on the stock given its weak financial performance that justify its cheaper valuations compared for peers. We reduce our TP to Rs 450 valued at 11x of FY16E earnings,” says Dolat Capital research report.

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