Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
T h e g l a s s i s h a l f e m p t y…
NIIT Technologies (NTL) could have been the only BUY in our coverage
universe, apart from TCS and Infosys, for a variety of reasons. Notable
reasons include 1) operating margin (EBITDA, OPM) profile and historical
composure relative to peers, 2) sticky relationships with top clients
coupled with healthy order book yields revenue visibility, 3) attrition,
onsite billing rates – comparable to best in the industry for certain
verticals and non-linear revenue contribution and 4) compelling valuation
multiples relative to similar margin profile companies. Acknowledging
that these claims could have been contested frequently, what comforts us
is that trading of OPM, from Q2FY12 levels of 14.8%, for revenues is
unlikely as management prudence prevails and margins below a preset
levels are unacceptable even to the founders. Anecdotally, the 2008-09
recession saw NTL trading at a meagre P/E multiple of 1.9x its trailing 12
month earnings. Were the events to unfold again, investors could be
staring at substantial downsides from current levels. Consequently,
though we like the operating model, chaotic macro overturns our
rationale. We are initiating coverage on the stock with a HOLD rating.
Sticky relationship with top clients coupled with healthy order book
improves revenue visibility
NTL’s long standing relationships with a majority of its top clients
including British Airways, Holcim, SEI, ING group, Sabre, Sita and
Deutsche Bahn (DB) coupled with healthy order book of US$232 million,
as at Q2FY12 end, help improve revenue visibility. Applying historical
(March 2006-11) average of 47.9% for ratio of opening next-twelve-month
(NTM) order book to revenue billed in NTM on FY11 order book of $169
million yields FY12E revenues of $ 352.5 million, YoY growth of 29.1%.
Valuations
NIIT Tech has one of the best operating models within the midcap space
primarily led by 1) revenue growth (growth at 17.9% CAGR during FY09-
13E), 2) stable EBITDA margin, which treads the 17-20% band, 3) superior
onsite billing rates (US$70-75/hour) and 4) attrition (13.4% Q2FY12 LTM
attrition) comparable to Tier-1 players. At current levels, NTL is trading at
5.9x and 5.4x our FY12E and FY13E diluted EPS estimate of | 31.7 and |
34.7, respectively. From a Mcap/sales and EV/EBITDA perspective, it is
trading at 0.7x and 3.8x on FY12E and 0.6x and 3.1x on FY13E basis,
respectively. We have valued the company at 4.9x its FY13 EPS of | 34.7
(25% discount to its historical 1-year forward PE multiple of 6.5x to
account for the uncertain macro) to arrive at our target price of | 170
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
T h e g l a s s i s h a l f e m p t y…
NIIT Technologies (NTL) could have been the only BUY in our coverage
universe, apart from TCS and Infosys, for a variety of reasons. Notable
reasons include 1) operating margin (EBITDA, OPM) profile and historical
composure relative to peers, 2) sticky relationships with top clients
coupled with healthy order book yields revenue visibility, 3) attrition,
onsite billing rates – comparable to best in the industry for certain
verticals and non-linear revenue contribution and 4) compelling valuation
multiples relative to similar margin profile companies. Acknowledging
that these claims could have been contested frequently, what comforts us
is that trading of OPM, from Q2FY12 levels of 14.8%, for revenues is
unlikely as management prudence prevails and margins below a preset
levels are unacceptable even to the founders. Anecdotally, the 2008-09
recession saw NTL trading at a meagre P/E multiple of 1.9x its trailing 12
month earnings. Were the events to unfold again, investors could be
staring at substantial downsides from current levels. Consequently,
though we like the operating model, chaotic macro overturns our
rationale. We are initiating coverage on the stock with a HOLD rating.
Sticky relationship with top clients coupled with healthy order book
improves revenue visibility
NTL’s long standing relationships with a majority of its top clients
including British Airways, Holcim, SEI, ING group, Sabre, Sita and
Deutsche Bahn (DB) coupled with healthy order book of US$232 million,
as at Q2FY12 end, help improve revenue visibility. Applying historical
(March 2006-11) average of 47.9% for ratio of opening next-twelve-month
(NTM) order book to revenue billed in NTM on FY11 order book of $169
million yields FY12E revenues of $ 352.5 million, YoY growth of 29.1%.
Valuations
NIIT Tech has one of the best operating models within the midcap space
primarily led by 1) revenue growth (growth at 17.9% CAGR during FY09-
13E), 2) stable EBITDA margin, which treads the 17-20% band, 3) superior
onsite billing rates (US$70-75/hour) and 4) attrition (13.4% Q2FY12 LTM
attrition) comparable to Tier-1 players. At current levels, NTL is trading at
5.9x and 5.4x our FY12E and FY13E diluted EPS estimate of | 31.7 and |
34.7, respectively. From a Mcap/sales and EV/EBITDA perspective, it is
trading at 0.7x and 3.8x on FY12E and 0.6x and 3.1x on FY13E basis,
respectively. We have valued the company at 4.9x its FY13 EPS of | 34.7
(25% discount to its historical 1-year forward PE multiple of 6.5x to
account for the uncertain macro) to arrive at our target price of | 170
No comments:
Post a Comment