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D i v e s t i t u r e o f E l e m e n t C o r p …
NIIT Ltd has divested its stake in its US based subsidiary Element K
Corporation, in an all-cash deal worth $110 million (| 539 crore at
|49.01/$), to Skillsoft Corporation and Skillsoft Ireland Limited, indirect
subsidiaries of SSI Investments II Limited. We spoke with Kapil Saurabh
(part of the investor relation team) to better understand the deal structure.
Key takeaways of our discussion are highlighted below:
ƒ Facts about Element K corporation
The company had bought Element Corporation in FY06 for $35
million and the business contributed ~$86 million (| 391 crore) to
FY11 revenues, $8.5 million (| 38.7 crore) to EBITDA and a modest
$2.5 million (| 11.4 crore) to PAT. Element K had ~600 employees,
who would be transferred to its new owners.
ƒ Deal modalities and usage of cash
As part of the deal, NIIT would receive $110 million (| 539 crore @
|/$ of 49.01). Further, NIIT has also entered into a long-term services
and licensing agreement with Skillsoft with minimum committed
volume of $2.5 million (| 12.3 crore)/year for five years. Discussions
suggest NIIT would earn | 439 crore adjusted for capital gains tax of
~| 100 crore. The company plans to repay ~| 250 crore of its
existing debt of | 362 crore and invest the remaining amount in the
upcoming platforms like cloud campus, etc. At the current cost of
debt of ~9%, debt repayment could bring savings of around | 8.7
crore and could likely bump up FY12E EPS by 9.3% (Exhibit 2). That
said, NIIT is due to report its earnings on October 21, 2011 & we
would wait till quarterly earnings to revise our estimates.
V a l u a t i o n
We expect revenues, EBITDA and earnings to grow at a modest 8.5%,
9.5% and 9.6% CAGR, respectively during FY10-FY13E. We have valued
NIIT on an SOTP basis with an overall EV/EBITDA target multiple of 4.4x
our FY12E EBITDA i.e. with a target price of | 46 and maintain our HOLD
rating.
ƒ Healthier balance sheet on cards
As of March 2011, NIIT had goodwill of ~$48 million primarily due
to Element K acquisition, write-down of which could lead to
trimming of the balance sheet size. Further, the company has
suggested that it is in no hurry to leverage its balance sheet again to
buy revenues. Operationally, gross margins and EBITDA should
improve led by lower employee base and the exit of margin drag
business (Element K). Finally, FY11 capex could be lower by $5-6
million vs. earlier planned.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
D i v e s t i t u r e o f E l e m e n t C o r p …
NIIT Ltd has divested its stake in its US based subsidiary Element K
Corporation, in an all-cash deal worth $110 million (| 539 crore at
|49.01/$), to Skillsoft Corporation and Skillsoft Ireland Limited, indirect
subsidiaries of SSI Investments II Limited. We spoke with Kapil Saurabh
(part of the investor relation team) to better understand the deal structure.
Key takeaways of our discussion are highlighted below:
ƒ Facts about Element K corporation
The company had bought Element Corporation in FY06 for $35
million and the business contributed ~$86 million (| 391 crore) to
FY11 revenues, $8.5 million (| 38.7 crore) to EBITDA and a modest
$2.5 million (| 11.4 crore) to PAT. Element K had ~600 employees,
who would be transferred to its new owners.
ƒ Deal modalities and usage of cash
As part of the deal, NIIT would receive $110 million (| 539 crore @
|/$ of 49.01). Further, NIIT has also entered into a long-term services
and licensing agreement with Skillsoft with minimum committed
volume of $2.5 million (| 12.3 crore)/year for five years. Discussions
suggest NIIT would earn | 439 crore adjusted for capital gains tax of
~| 100 crore. The company plans to repay ~| 250 crore of its
existing debt of | 362 crore and invest the remaining amount in the
upcoming platforms like cloud campus, etc. At the current cost of
debt of ~9%, debt repayment could bring savings of around | 8.7
crore and could likely bump up FY12E EPS by 9.3% (Exhibit 2). That
said, NIIT is due to report its earnings on October 21, 2011 & we
would wait till quarterly earnings to revise our estimates.
V a l u a t i o n
We expect revenues, EBITDA and earnings to grow at a modest 8.5%,
9.5% and 9.6% CAGR, respectively during FY10-FY13E. We have valued
NIIT on an SOTP basis with an overall EV/EBITDA target multiple of 4.4x
our FY12E EBITDA i.e. with a target price of | 46 and maintain our HOLD
rating.
ƒ Healthier balance sheet on cards
As of March 2011, NIIT had goodwill of ~$48 million primarily due
to Element K acquisition, write-down of which could lead to
trimming of the balance sheet size. Further, the company has
suggested that it is in no hurry to leverage its balance sheet again to
buy revenues. Operationally, gross margins and EBITDA should
improve led by lower employee base and the exit of margin drag
business (Element K). Finally, FY11 capex could be lower by $5-6
million vs. earlier planned.
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