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NIIT: Training in demand
NIIT’s Q3FY11 results were in line with our
estimates. The pick-up in volumes in Corporate
Learning Solutions of 13% together with
improvement in order book bodes well for the
growth outlook of the company. We reiterate our
Buy rating, implying 30% upside as the long term
outlook on margin expansion and cautious stance
on School Learning Solution (SLS) by the company
would help improve RoE to 18% levels.
Results in line with expectations: Both sales and
profits were in line with expectations. Within segments,
Corporate Learning Solution (CLS) and Individual
Learning Solution (ILS) compensated for the weak
performance of School Learning Solution (SLS).
Growth in volumes and order flow for CLS segment
bode well: The CLS segment reported 8% growth in
sales and 186bp expansion in EBITDA margin to 8.4% in
Q3FY11. Pending order book shows improvement of
3.6% YoY to US$92.5mn (58% executable over 12
months).
Reiterate Buy; maintain target price at Rs74: We
maintain our fair value at Rs74 as we see improvement
in business environment. We expect the company to
register 8.4%, 17.6% and 21.4% in revenue, EBITDA and
net profit CAGR respectively over FY10-13E. At current
valuation of 8.3x FY12E, we believe that the stock is
very attractive.
Segmental Performance – Q3FY11 result review
In segmental performance, ILS and CLS registered healthy growth in sales and operating
margin. However, SLS segment’s performance was lower than our expectation in both sales
and EBITDA margin. While we are concerned with lower growth and EBITDA margin of the SLS
segment, improvement in CLS and ILS pushed up the overall performance of the company as
they together contribute 84% to the revenue. Also, the strategy of going selective on
government school contracts bodes well as it would improve the overall return on equity of
the company as most capex goes to ICT projects which generated lower RoE. Hence, assuming
that the company would be selective in ICT projects, we expect NIIT to start generating free
cash flow and RoE in the range of 18%.
Individual Learning Solution: Revenue grew by 11.7% YoY on the back of improvement in
enrolments (7.7% YoY growth on like-to-like basis) during the Q3FY11. We expect growth
momentum to continue with increase in enrolments for FY11E. During the quarter, the
operating profit margin expanded by 146bp to 21.2% even after absorbing increase in salary
and other operational expenses in the last quarter. We attribute this improvement in margin to
better course mix and higher realisation per enrolment.
Corporate Learning Solution: This segment registered 8% YoY growth in net sales on the back of
higher volume growth of 13% YoY. The operating profit margin also witnessed improvement of
186bp to 8.4%. With pending order growth of 3.6% YoY to US$92.5mn and improvement in
business prospects in FY12E, we expect the company to show improvement in growth in FY12E.
School Learning Solution: Sales declined by 18% YoY to Rs363mn in Q3FY10. The operating
profit margin too decline to 12.7% vs 17.6% in Q3FY10. We attribute part of this increased
expense to the expansion strategy of the company into the private school segment.
New business: This segment reported EBITDA loss of Rs25mn. With recruitment picking up for
both IFBI and Imperia, the management expects these two segments to be profitable in FY11E.
During the quarter, enrolment for finance and management training grew by 57% YoY
signalling a pick-up in hiring trend in the BFSI sector.
Maintain Buy with target price to Rs74
We reiterate our Buy rating (fair value of Rs74 per share) due to improvement in business mix and
scope for margin expansion. We expect the EBITDA and net profit to witness CAGR of 17.6% and
21.4% over FY10-13E. At Rs57, the stock trades at 8.3x FY12E and 7.2x FY13E earnings estimates. The
triggers for the stock are 1) better sales mix within CLS segment with expansion of operating
margins, 2) Improvement in return on investment as the company plans to go selective on ICT
projects which used to drag return on equity. We expect the company to reach 18% return on equity
and turn free cash flow positive in FY12E and 3) dividend yield of the company will reach 3% in
FY12E.
Conference Call highlights:
Within ILS, the company is witnessing strong growth in the Indian market. But in some other
geographies like Africa it is facing a challenge. Q4FY11 may not see strong YoY growth in ILS
due to lower growth in enrolment for long term courses. The company is working on highly
intensive, low duration courses to improve enrolment growth for FY12.
The management is focusing on newer initiatives within new businesses such as skill
development which can lead to an increase in losses at overall EBITDA levels. However IFBI and
Imperia will break-even and become positive.
It is set on reduction of balance sheet size by reducing debt level.
Debtors’ days increased marginally during the quarter. The company is facing severe payment
issues from some government school contracts (Andhra Pradesh) which is pushing the
receivable days up.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
NIIT: Training in demand
NIIT’s Q3FY11 results were in line with our
estimates. The pick-up in volumes in Corporate
Learning Solutions of 13% together with
improvement in order book bodes well for the
growth outlook of the company. We reiterate our
Buy rating, implying 30% upside as the long term
outlook on margin expansion and cautious stance
on School Learning Solution (SLS) by the company
would help improve RoE to 18% levels.
Results in line with expectations: Both sales and
profits were in line with expectations. Within segments,
Corporate Learning Solution (CLS) and Individual
Learning Solution (ILS) compensated for the weak
performance of School Learning Solution (SLS).
Growth in volumes and order flow for CLS segment
bode well: The CLS segment reported 8% growth in
sales and 186bp expansion in EBITDA margin to 8.4% in
Q3FY11. Pending order book shows improvement of
3.6% YoY to US$92.5mn (58% executable over 12
months).
Reiterate Buy; maintain target price at Rs74: We
maintain our fair value at Rs74 as we see improvement
in business environment. We expect the company to
register 8.4%, 17.6% and 21.4% in revenue, EBITDA and
net profit CAGR respectively over FY10-13E. At current
valuation of 8.3x FY12E, we believe that the stock is
very attractive.
Segmental Performance – Q3FY11 result review
In segmental performance, ILS and CLS registered healthy growth in sales and operating
margin. However, SLS segment’s performance was lower than our expectation in both sales
and EBITDA margin. While we are concerned with lower growth and EBITDA margin of the SLS
segment, improvement in CLS and ILS pushed up the overall performance of the company as
they together contribute 84% to the revenue. Also, the strategy of going selective on
government school contracts bodes well as it would improve the overall return on equity of
the company as most capex goes to ICT projects which generated lower RoE. Hence, assuming
that the company would be selective in ICT projects, we expect NIIT to start generating free
cash flow and RoE in the range of 18%.
Individual Learning Solution: Revenue grew by 11.7% YoY on the back of improvement in
enrolments (7.7% YoY growth on like-to-like basis) during the Q3FY11. We expect growth
momentum to continue with increase in enrolments for FY11E. During the quarter, the
operating profit margin expanded by 146bp to 21.2% even after absorbing increase in salary
and other operational expenses in the last quarter. We attribute this improvement in margin to
better course mix and higher realisation per enrolment.
Corporate Learning Solution: This segment registered 8% YoY growth in net sales on the back of
higher volume growth of 13% YoY. The operating profit margin also witnessed improvement of
186bp to 8.4%. With pending order growth of 3.6% YoY to US$92.5mn and improvement in
business prospects in FY12E, we expect the company to show improvement in growth in FY12E.
School Learning Solution: Sales declined by 18% YoY to Rs363mn in Q3FY10. The operating
profit margin too decline to 12.7% vs 17.6% in Q3FY10. We attribute part of this increased
expense to the expansion strategy of the company into the private school segment.
New business: This segment reported EBITDA loss of Rs25mn. With recruitment picking up for
both IFBI and Imperia, the management expects these two segments to be profitable in FY11E.
During the quarter, enrolment for finance and management training grew by 57% YoY
signalling a pick-up in hiring trend in the BFSI sector.
Maintain Buy with target price to Rs74
We reiterate our Buy rating (fair value of Rs74 per share) due to improvement in business mix and
scope for margin expansion. We expect the EBITDA and net profit to witness CAGR of 17.6% and
21.4% over FY10-13E. At Rs57, the stock trades at 8.3x FY12E and 7.2x FY13E earnings estimates. The
triggers for the stock are 1) better sales mix within CLS segment with expansion of operating
margins, 2) Improvement in return on investment as the company plans to go selective on ICT
projects which used to drag return on equity. We expect the company to reach 18% return on equity
and turn free cash flow positive in FY12E and 3) dividend yield of the company will reach 3% in
FY12E.
Conference Call highlights:
Within ILS, the company is witnessing strong growth in the Indian market. But in some other
geographies like Africa it is facing a challenge. Q4FY11 may not see strong YoY growth in ILS
due to lower growth in enrolment for long term courses. The company is working on highly
intensive, low duration courses to improve enrolment growth for FY12.
The management is focusing on newer initiatives within new businesses such as skill
development which can lead to an increase in losses at overall EBITDA levels. However IFBI and
Imperia will break-even and become positive.
It is set on reduction of balance sheet size by reducing debt level.
Debtors’ days increased marginally during the quarter. The company is facing severe payment
issues from some government school contracts (Andhra Pradesh) which is pushing the
receivable days up.
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