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A strong 11.6% US$ revenue growth qoq beat our estimates easily. However, the 379bp margin
decline (-46bp ex one offs) surprised us, which is partly driven by to large deal expenses/margins
and lower than expected US$ realized rate. Focus on growing topline is reflected in US$200m
order intake.
Strong double digit topline growth ahead of our expectations
NTL topline grew by 11.6% qoq to US$82.1m (RBS est US$80.1m). Growth was led by the
Travel vertical (+14.8% qoq) in Europe (+14.6% qoq) as well as Retail (11.6%). The US
geography also grew by 11.6% qoq. In INR terms, revenues were up 12.7% to Rs3.69bn (exhedging
gains/loss).
Growth was buoyed by revenues from the large deals (Morris and Eurostar) announced in
1Q12, which cumulatively contributed to US$2m. In addition, the Proyecta acquisition was
also partly integrated during the quarter, contributing US$1.5m. Ex-these deals/acquisition we
estimate IT services revenues (ex-GIS) grew by a healthy 4.9% qoq. GIS revenues were up
32.7% qoq (20% yoy) at Rs264.
Margins below expectations, PAT boosted by fx gains and minority interest
EBITDA margin (ex-hedging) was down 379bp at 14.4%. Excluding the one time impact of
Rs119m related to start up costs of the Morris JV, normalized EBITDA margin was down
57bp, versus our expectation of a 128bp improvement. This is partly explained by a) realized
exchange rate of Rs45.02 being 1.7% below our assumption - this could have a 65-85bp
impact; and b) Morris JV being at a break-even stage versus our assumption of a high-single
digit margin.
We believe gross margin performance adjusting for these factors have been somewhat below
our estimates and also given the increase in utilization (+200bp) and higher than estimated
GIS revenues.
Non operating income was up to Rs132m (Rs49m in 1Q12) driven by higher FX gains
(including hedging) of Rs107m (Rs21m in 1Q12). Tax rate was broadly stable at 25.9%
(26.6% in 1Q12).
As expected there was a gain on the minority interest line of Rs27m due to loss of the Morris
JV. As a result PAT was up 11.4% to Rs458m.
Record order intake boosted by Morris and Indian Government deals
NTL reported a record order intake of US$200m. Excluding the already announced Morris
deal of US$85m, order intake was US$115m versus US$60m yoy.
The company announced 2 deals with Police Departments State Governments cumulatively
worth US$45m for implementing crime tracking systems. These deals have a significant
hardware element of 65-70%; hence we expect profitability on these deals to be in single
digits on a consolidated basis. Given the typically longer collection cycle as well as full tax
rate on domestic business, we do not expect earnings accretion from these deals to be
material.
Management noted that the spending activity from existing clients continued to remain at
healthy levels.
Normalized margins could be muted in FY12, potential upside in FY13
We see strong topline growth continuing over the next couple of quarters given ramp up of
large deals announced over 1HFY12.
Margins could remain muted in the near term given a) Morris deal revenues could come at
break-even margins for the rest of FY12 due to predominantly onsite staffing; and b) ramp up
of hardware led domestic deals, which would have very low margins to begin with. On the
other hand, favourable currency movement and operating leverage should provide some
support. Margins in FY13 should benefit from the ramp up of profitability of the Morris and
Eurostar deals.
We find valuations of 7x FY13F EPS attractive relative to peer group given the reasonably
high growth visibility in an uncertain demand environment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A strong 11.6% US$ revenue growth qoq beat our estimates easily. However, the 379bp margin
decline (-46bp ex one offs) surprised us, which is partly driven by to large deal expenses/margins
and lower than expected US$ realized rate. Focus on growing topline is reflected in US$200m
order intake.
Strong double digit topline growth ahead of our expectations
NTL topline grew by 11.6% qoq to US$82.1m (RBS est US$80.1m). Growth was led by the
Travel vertical (+14.8% qoq) in Europe (+14.6% qoq) as well as Retail (11.6%). The US
geography also grew by 11.6% qoq. In INR terms, revenues were up 12.7% to Rs3.69bn (exhedging
gains/loss).
Growth was buoyed by revenues from the large deals (Morris and Eurostar) announced in
1Q12, which cumulatively contributed to US$2m. In addition, the Proyecta acquisition was
also partly integrated during the quarter, contributing US$1.5m. Ex-these deals/acquisition we
estimate IT services revenues (ex-GIS) grew by a healthy 4.9% qoq. GIS revenues were up
32.7% qoq (20% yoy) at Rs264.
Margins below expectations, PAT boosted by fx gains and minority interest
EBITDA margin (ex-hedging) was down 379bp at 14.4%. Excluding the one time impact of
Rs119m related to start up costs of the Morris JV, normalized EBITDA margin was down
57bp, versus our expectation of a 128bp improvement. This is partly explained by a) realized
exchange rate of Rs45.02 being 1.7% below our assumption - this could have a 65-85bp
impact; and b) Morris JV being at a break-even stage versus our assumption of a high-single
digit margin.
We believe gross margin performance adjusting for these factors have been somewhat below
our estimates and also given the increase in utilization (+200bp) and higher than estimated
GIS revenues.
Non operating income was up to Rs132m (Rs49m in 1Q12) driven by higher FX gains
(including hedging) of Rs107m (Rs21m in 1Q12). Tax rate was broadly stable at 25.9%
(26.6% in 1Q12).
As expected there was a gain on the minority interest line of Rs27m due to loss of the Morris
JV. As a result PAT was up 11.4% to Rs458m.
Record order intake boosted by Morris and Indian Government deals
NTL reported a record order intake of US$200m. Excluding the already announced Morris
deal of US$85m, order intake was US$115m versus US$60m yoy.
The company announced 2 deals with Police Departments State Governments cumulatively
worth US$45m for implementing crime tracking systems. These deals have a significant
hardware element of 65-70%; hence we expect profitability on these deals to be in single
digits on a consolidated basis. Given the typically longer collection cycle as well as full tax
rate on domestic business, we do not expect earnings accretion from these deals to be
material.
Management noted that the spending activity from existing clients continued to remain at
healthy levels.
Normalized margins could be muted in FY12, potential upside in FY13
We see strong topline growth continuing over the next couple of quarters given ramp up of
large deals announced over 1HFY12.
Margins could remain muted in the near term given a) Morris deal revenues could come at
break-even margins for the rest of FY12 due to predominantly onsite staffing; and b) ramp up
of hardware led domestic deals, which would have very low margins to begin with. On the
other hand, favourable currency movement and operating leverage should provide some
support. Margins in FY13 should benefit from the ramp up of profitability of the Morris and
Eurostar deals.
We find valuations of 7x FY13F EPS attractive relative to peer group given the reasonably
high growth visibility in an uncertain demand environment.
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