Buy NIIT Technologies; target Rs 360: Dolat Capital

Dolat Capital's research report on NIIT Technologies

Revenue in reported currency were flat QQ at Rs 5.4 bn from Rs 5.3 bn in Q4FY13 inline with our expectations. The growth was soft owing to seasonal impact on GIS revenues which is highest in Q4 and weakest in Q1 and sustained weakness in travel vertical (primarily in the European market).  Travel witnessed over USD 75mn of new order intake during the quarter largely from US/Asia market.  Revenues in Govt/others/manufacturing verticals remain strong during the quarter.  Revenues were strong and inline across key projects and segments such as CCTNS, Morris, GIS, NITL solutions.  Hardware revenues component was at Rs 590mn for the quarter. The company is confident to do better than industry in FY14 helped by robust 12M order executable book of USD 263mn (versus USD 240 year ago). It expect sustained momentum from its Manufacturing and Government clients specifically in the US and Asian markets.  Europe continues to remain soft due to slow decision making owing to existing economic uncertainties. NIIT Tech added fresh orders of about USD 145mn during the quarter, its best ever versus average of USD 103mn for last 8 Quarters, leading to USD 263mn of firm business executable over next 12 month basis.  It has added 5 new clients and is L1 in 3 more deals with total TCV of over USD40mn. The company expects sustained demand even for the non-linear business segment both for the managed services and transaction based services in the Morris account. EBIT degrew by 12 percent (QQ) at Rs 634mn (EBIT margin down by 180bps QQ) as it hiked wages during the quarter to the tune of 3/8 percent for onsite/offshore employees.  The margin is likely to improve hereon as it would see pickup in overall utilization (77.3 percent versus 79 percent in Q1FY13).  It has also commented that the new government deals are margin neutral and few of its renewal deals in travel/manufacturing segment had an upward revision in pricing. Valuation: "Our optimistic belief on sustained revenue growth gets further reinforced on strong new order intake during the quarter at USD 145mn despite the various economic challenges. We remain positive on the stock in view of its sustained traction in fresh order intake and client additions supported by its niche capabilities in TTL and Insurance verticals. We maintain our positive view on the stock and have built in Revenue/PAT CAGR of 18 percent/17 percent over FY13-15E.  We maintain our BUY rating on the stock with a Target Price of Rs 360, valued at 7.5x of its FY15E earnings," says Dolat Capital research report. 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.

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