Hold NIIT Technologies; target of Rs 450: ICICI Direct

NTL’s dollar revenues increased 3.3% sequentially to $103.4 million in Q2FY17 in line with our expectation of $103.1 million. Growth was led by travel & transportation (grew 6% QoQ), BFSI (grew 3.4% QoQ) among verticals while US (grew 4.6% QoQ) and EMEA (grew 7.9% QoQ) led among geographies. In rupee terms, rupee revenues grew 3.3% QoQ to Rs 691.3 crore due to an increase in international business. The management expects Q3 to be seasonally soft with ramp-down of a US airline client. However, growth is expected to pick up in Q4FY17 on the back of strong order intake (US$100 million fresh order intake run-rate for past three quarters) that could lead to better performance in H2FY17 compared to H1. The company is positive on continued traction in US insurance segment and pick-up in transportation & travel vertical and digital business (grew 9.0% sequentially). Going ahead, we expect its dollar revenue to grow at a subdued CAGR of 3.0% to $436 million in FY16-18E.

At the CMP, NTL is trading at very attractive valuation of 9x FY18E EPS. However, our HOLD rating is obligated by single digit revenue growth in dollar terms over FY18E. Consequently, we anticipate its revenue, EBITDA will grow at a CAGR of 4.7%, 2.2%, respectively, in FY16-18E. We value NTL at 10x its FY18E EPS of Rs 45 to arrive at our revised Rs 450 target price.