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We see NTL's focus moving from steady growth and margins to aggressive growth with margin
volatility. This was seen in 2QFY12: USD revenue growth of 11.6%, order intake of US$200m
and adjusted EBITDA margin dip of 57bp. We believe the move will pay off in the medium term
and increase FY13F EPS by 6%.
Conscious move to higher revenue trajectory a medium-term positive; reiterate Buy
NTL has historically managed operations conservatively, growing with a sticky client base in
focus verticals and managing margins well. Of late, it has won large deals in non-traditional areas
(media vertical and public sector). This implies higher growth rates, but with more volatile margins
as large deal margins are back ended. 2Q12 results were along these lines. US dollar revenues
grew 11.6% qoq, but adjusted margins (ex-one-off deal costs) fell 57bp, despite a 200bp rise in
utilisation and a mild currency tailwind. A US$200m order intake visibly improves medium-term
growth prospects. We raise FY12/13F US$ revenue forecasts by 4%/8% and EPS forecasts by
1%/6%, adjusting for pass-through revenues in some large deals. We forecast 19% US$ revenue
growth in FY13 (ex-hardware), which we believe will exceed the industry average, given macro
weakness. This should support re-rating of the stock closer to the peer group average vs a 26 %
discount on FY13F P/E currently.
2QFY12 revenues beat estimates easily, solid order book adjusted for Morris
NTL’s top line grew 11.6% qoq to US$82.1m (RBS est US$80.1m), led by the Travel vertical
(+14.8% qoq) and Europe (+14.6% qoq). In INR terms, revenues were up 12.7% to Rs3.69bn
(ex-hedging gains/loss). Growth was boosted by large deal revenues (Morris and Eurostar) that
started to flow in and partial integration of Proyecta. Ex-these factors, we estimate IT services
revenues (ex-GIS) grew by 4.9% qoq. NTL reported a record order intake of US$200m. Excluding
the Morris deal, the order intake was US$115m vs US$60m a year ago. Two domestic public
sector deals worth US$45m were won during the quarter.
2QFY12 margins below expectations, PAT boosted by FX gains and minority interest
EBITDA margin (ex-hedging) was down 379bp at 14.4% (-57bp ex-Morris JV set-up costs),
missing our forecast by 197bp. This is explained by a lower realised rupee rate, Morris JV
margins at break-even and higher establishment costs. Other income of Rs132m was driven by
higher FX gains of Rs107m (Rs21m in 1Q12). Hence, PAT was up 11.4% to Rs458m.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We see NTL's focus moving from steady growth and margins to aggressive growth with margin
volatility. This was seen in 2QFY12: USD revenue growth of 11.6%, order intake of US$200m
and adjusted EBITDA margin dip of 57bp. We believe the move will pay off in the medium term
and increase FY13F EPS by 6%.
Conscious move to higher revenue trajectory a medium-term positive; reiterate Buy
NTL has historically managed operations conservatively, growing with a sticky client base in
focus verticals and managing margins well. Of late, it has won large deals in non-traditional areas
(media vertical and public sector). This implies higher growth rates, but with more volatile margins
as large deal margins are back ended. 2Q12 results were along these lines. US dollar revenues
grew 11.6% qoq, but adjusted margins (ex-one-off deal costs) fell 57bp, despite a 200bp rise in
utilisation and a mild currency tailwind. A US$200m order intake visibly improves medium-term
growth prospects. We raise FY12/13F US$ revenue forecasts by 4%/8% and EPS forecasts by
1%/6%, adjusting for pass-through revenues in some large deals. We forecast 19% US$ revenue
growth in FY13 (ex-hardware), which we believe will exceed the industry average, given macro
weakness. This should support re-rating of the stock closer to the peer group average vs a 26 %
discount on FY13F P/E currently.
2QFY12 revenues beat estimates easily, solid order book adjusted for Morris
NTL’s top line grew 11.6% qoq to US$82.1m (RBS est US$80.1m), led by the Travel vertical
(+14.8% qoq) and Europe (+14.6% qoq). In INR terms, revenues were up 12.7% to Rs3.69bn
(ex-hedging gains/loss). Growth was boosted by large deal revenues (Morris and Eurostar) that
started to flow in and partial integration of Proyecta. Ex-these factors, we estimate IT services
revenues (ex-GIS) grew by 4.9% qoq. NTL reported a record order intake of US$200m. Excluding
the Morris deal, the order intake was US$115m vs US$60m a year ago. Two domestic public
sector deals worth US$45m were won during the quarter.
2QFY12 margins below expectations, PAT boosted by FX gains and minority interest
EBITDA margin (ex-hedging) was down 379bp at 14.4% (-57bp ex-Morris JV set-up costs),
missing our forecast by 197bp. This is explained by a lower realised rupee rate, Morris JV
margins at break-even and higher establishment costs. Other income of Rs132m was driven by
higher FX gains of Rs107m (Rs21m in 1Q12). Hence, PAT was up 11.4% to Rs458m.
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