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We believe NIIT Tech's medium-term growth is secured by its recent deal wins,
Proyecta acquisition and senior hires. We lower our FY12F/13F US$ revenues by
1%/2% and EPS by 4%/6%, and view a 7.3% CQGR in revenues over 1Q-4Q12 as a
catalyst for share price performance. Maintain Buy; TP lowered to Rs263
Revenue visibility driven by large deals and Proyecta acquisition
We do not believe NIIT Tech, with its key focus on economically sensitive verticals, BFSI
(more focused on Insurance) and Travel & Transport, will be immune to a worsening macro
environment. However, we see incremental revenue growth from the recently signed Morris
Communications and EuroStar deals (we peg the cumulate TCV at US$115m-120m). In
addition, we estimate the recent Proyecta acquisition (US$9.5m annualised run rate) will
provide some cushion against lower visibility on IT budgets over 2HFY12. Collectively, we
estimate these will contribute over US$20m in FY12 (7% of FY11) revenues. Further, we
expect minimal impact on the GIS business, which is largely in the domestic market.
Modest cut to revenues and earnings relative to the sector
NIIT Tech has been strengthening its senior leadership, particularly in the sales organisation,
over the past few months. The company is also now looking to diversify beyond its traditional
verticals into Media and Healthcare. We believe these changes should have a positive
bearing on its account mining as well as more participation in bidding for large deals, key
reasons for slower-than-industry growth in the past. Hence, we cut our FY12F/13F US$
revenues modestly by 1%/2% and EPS by 4%/6%.
Valuations do not fully reflect improving fundamentals; reiterate Buy
On our revised forecasts, the stock trades at one-year forward valuations of 6.6x P/E and
1.4x P/BV. It has outperformed the BSE IT Index by 35% ytd, in line with our thesis that
improving fundamentals should lead to a rerating. We value the stock in line with a set of
similar-sized peer group stocks, which yields a target price of Rs263 (at a target FY13 P/E
multiple of 8.1x, in line with the mean valuation of similar-sized peers). We believe more large
deal wins as well as client mining improvement should drive convergence of growth rates and
valuations with peers. We believe large deal ramp-ups and the Proyecta acquisition should
drive a 7.3% revenue CQGR over 1Q12-4Q12, driving stock price performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We believe NIIT Tech's medium-term growth is secured by its recent deal wins,
Proyecta acquisition and senior hires. We lower our FY12F/13F US$ revenues by
1%/2% and EPS by 4%/6%, and view a 7.3% CQGR in revenues over 1Q-4Q12 as a
catalyst for share price performance. Maintain Buy; TP lowered to Rs263
Revenue visibility driven by large deals and Proyecta acquisition
We do not believe NIIT Tech, with its key focus on economically sensitive verticals, BFSI
(more focused on Insurance) and Travel & Transport, will be immune to a worsening macro
environment. However, we see incremental revenue growth from the recently signed Morris
Communications and EuroStar deals (we peg the cumulate TCV at US$115m-120m). In
addition, we estimate the recent Proyecta acquisition (US$9.5m annualised run rate) will
provide some cushion against lower visibility on IT budgets over 2HFY12. Collectively, we
estimate these will contribute over US$20m in FY12 (7% of FY11) revenues. Further, we
expect minimal impact on the GIS business, which is largely in the domestic market.
Modest cut to revenues and earnings relative to the sector
NIIT Tech has been strengthening its senior leadership, particularly in the sales organisation,
over the past few months. The company is also now looking to diversify beyond its traditional
verticals into Media and Healthcare. We believe these changes should have a positive
bearing on its account mining as well as more participation in bidding for large deals, key
reasons for slower-than-industry growth in the past. Hence, we cut our FY12F/13F US$
revenues modestly by 1%/2% and EPS by 4%/6%.
Valuations do not fully reflect improving fundamentals; reiterate Buy
On our revised forecasts, the stock trades at one-year forward valuations of 6.6x P/E and
1.4x P/BV. It has outperformed the BSE IT Index by 35% ytd, in line with our thesis that
improving fundamentals should lead to a rerating. We value the stock in line with a set of
similar-sized peer group stocks, which yields a target price of Rs263 (at a target FY13 P/E
multiple of 8.1x, in line with the mean valuation of similar-sized peers). We believe more large
deal wins as well as client mining improvement should drive convergence of growth rates and
valuations with peers. We believe large deal ramp-ups and the Proyecta acquisition should
drive a 7.3% revenue CQGR over 1Q12-4Q12, driving stock price performance.
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