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Margin squeeze likely near term due to investments but revenue robust
NIIT continues to see momentum in its Corporate Learning Services (CLS) and Individual Learning Services (ILS)
business. Enrolments are growing in ILS and should result in stronger revenue growth in FY12.
Deal pipeline in the CLS business remains robust. However, assuming the company is able to close more mega deals,
margins in the near term would be impacted by the initial investments.
On the ILS side (all individuals including banking, financial and BPO training services, such as IFBI, Imperia), the
company is looking to consolidate the centers to improve utilization.
Investments are being made to integrate the IT and VSAT systems in the centers. This may put pressure on margins in the
near term and result in a modest decline in EBITDA margins in 4Q y-o-y to c22%, which will be 12% downside risk to 4Q
ILS EBITDA and 7% risk to overall group 4Q EBITDA.
Valuation and risks
We value NIIT at a PE of 12x our FY12e EPS, in line with the historical average. We arrive at a target price of INR85.
We substantiate our PE-based valuation with a DCF analysis, resulting in a similar target price. We assume a revenue
CAGR of 13% over FY10-20, WACC of 13.8% and EBIT margins of 10% in the long term.
Slowdown in the IT demand environment remains the key risk to our estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Margin squeeze likely near term due to investments but revenue robust
NIIT continues to see momentum in its Corporate Learning Services (CLS) and Individual Learning Services (ILS)
business. Enrolments are growing in ILS and should result in stronger revenue growth in FY12.
Deal pipeline in the CLS business remains robust. However, assuming the company is able to close more mega deals,
margins in the near term would be impacted by the initial investments.
On the ILS side (all individuals including banking, financial and BPO training services, such as IFBI, Imperia), the
company is looking to consolidate the centers to improve utilization.
Investments are being made to integrate the IT and VSAT systems in the centers. This may put pressure on margins in the
near term and result in a modest decline in EBITDA margins in 4Q y-o-y to c22%, which will be 12% downside risk to 4Q
ILS EBITDA and 7% risk to overall group 4Q EBITDA.
Valuation and risks
We value NIIT at a PE of 12x our FY12e EPS, in line with the historical average. We arrive at a target price of INR85.
We substantiate our PE-based valuation with a DCF analysis, resulting in a similar target price. We assume a revenue
CAGR of 13% over FY10-20, WACC of 13.8% and EBIT margins of 10% in the long term.
Slowdown in the IT demand environment remains the key risk to our estimates.
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