SPA's research report on NIIT TechNITECH reported mixed set of numbers for Q3FY16 with lower revenue growth but inline profitability supported by strong margin expansion. Revenue de-grew QoQ by 0.9% to $102.8mn (SPAe: $105mn) while net profit at INR 741mn was in line with our estimate of INR 748mn supported by 98bps improvement in operating margin. Q4FY16 is also expected to be soft as new deal wins will start ramp-up from Q1FY17E. We believe that margin expansion is sustainable on back rising digital revenue and improving onsite/offshore mix. Continued margin improvement and recent deal wins is providing comfort to earnings growth. After recent correction, we upgrade our rating to BUY from HOLD with TP of INR 550. Highlight of NITECH's Q3FY16 performance was its continued margin expansion even in a soft quarter. We believe that there is still room for margin improvement if onsite/offshore mix reverts back to its peak levels of 55%/45%. During 9MFY16, onsite/offshore mix has improved to 59%/41% from 62%/38%. However, lumpy growth in its top 10 clients and decline in managed services is limiting growth. Top 10 accounts which showed good growth in Q3, needs to continue this momentum and break above the $45- $46mn quarterly run-rate to achieve industry leading growth rate. Continued margin improvement and recent deal wins is providing comfort to earnings growth. After recent correction, we upgrade our rating to BUY from HOLD with TP of INR 550. For all recommendations, click here 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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