NIIT Technologies – Bags largest ever deal:: RBS

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NIIT Tech announced a US$85m 5-year deal (to be executed by a 60% JV). We believe this deal,
the earlier announced Eurostar deal and beefing up of the sales organization showcase more
aggressive intent on growth.


60% JV with Morris to execute business of US$85m over 5 years
􀀟 NIIT Technologies announced a Joint venture with Morris Communications for providing
integrated IT & BPO services to Morris Communication.
􀀟 Under the contract the JV will provide services for an aggregate amount of US$85 m over a
period of 5 years.
􀀟 According to management, NIIT Tech will hold 60% stake in the JV, and hence it will be fully
consolidated on the books.
􀀟 As part of the contract the JV will take over key assets from Morris including IT Infrastructure,
people and application landscape.
Recent deals show that sales engine is revving up
􀀟 This is clearly the largest ever contract for NIIT Tech (the BSF deal which was announced last
year was of US$50m). In terms of annual contract value this translates into US$17m. The
company also announced a multi-million dollar deal with Eurostar, where we believe the
annual deal value could be US$5-10m. These two deals can can potentially add c8-10% to its
FY11 reported topline of US$276m.
􀀟 We also note that the deal is in the Media space, not one of the focus verticals of NIIT Tech
(Travel, BFSI and Retail/Manufacturing). We believe the company has become fairly
aggressive in its sales efforts of late. We note that the company has recently appointed
Global and European heads of Sales, versus a somewhat diffused sales organization earlier.


We await more clarity on margins, which could be dilutive in the near term
􀀟 We are yet to get clarity on margins for the deal, given that it involves people takeover from
onsite locations, in addition to assets.
􀀟 However, over the lifetime of the deal, there is opportunity to improve margins, through
shifting work offshore.
􀀟 We await details on the contractual terms between NIIT Tech and Morris, in terms of call/put
options on their stake in the JV.
􀀟 We will look to revise our forecasts, once we have more clarity on the deal economics.
􀀟 We reiterate our Buy on the stock. It trades at 6.7x FY12F EPS, at the lower of mid-cap peer
group