Sell NIIT Technologies; target of Rs 950: Dolat Capital

Dolat Capital's research report on NIIT Technologies

NITEC reported 3% QoQ CC revenue growth (our estm: 2%) largely driven by traction in Insurance (up 6% QoQ) and Others Vertical (up 11% QoQ) that covered up for decline in Travel vertical (-3.8% QoQ). OPM was in-line with our estimates at 14%. PAT stood at ` 1.1Bn below estm due to provisioning related exceptional loss of ` 128mn.  It has added $180mn in TCV including 3 large deals (2 in BFSI) during the quarter. Deal TCV on TTM basis is up 16% at $749mn. The 12M executable order book stood at $468mn up 20% YoY basis.  NIITTech expects FY21 growth to be positive given order book position, strong execution on deal ramp-up (not impacted as transitioned to WFH mode) and robust performance on BFS and Insurance vertical. It expects decline in revenues in Q1 and growth revival starting Q2 onwards. The company has also guided sub100bps decline in OPM.

Outlook

We expect revenue/earnings CAGR of 8%/5% over FY20-22E but believes that current valuations of 15x FY22E earnings are stretched given the potential risk in Travel vertical and thus maintain our Sell rating, with a TP of `950 valued at 12x FY22E EPS (inline to 10yr mean).