NIIT Tech (NITEC) reported an in-line quarter. Revenues were up 0.5% CC (5.9% in Re terms), mainly driven by Travel & Transportation (T&T) vertical (up 7% QoQ). However, margin declined 80bps QoQ due to wage hikes even as Re depreciation negated some of the impact. Overall we remain positive backed by its healthy order-book and margin improvement. We are revising our estimates upwards to account for Re depreciation and are building 20% EPS growth in FY13. Our new Mar-13 TP stands at Rs 350. Maintain BUY.
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Revenues in-line; strong profit on higher other income: Revenues grew 5.9% QoQ to Rs4.7bn, negatively impacted by hedge loss of Rs119mn. Volume growth came in at 0.5% QoQ. EBITDA margin fell by 80bps due to wage hikes (-235bps), partly offset by Re depreciation (+150bps). Net profit was up 25% QoQ, 6% above our expectations, on higher other income due to balance sheet revaluation gains of Rs173.5mn. EPS in the quarter stood at Rs9.6.
Revenue growth ahead of industry: Despite a muted quarter, management was confident of delivering growth ahead of the industry, supported by steady order backlog of US$240mn, healthy deal pipeline, and ramp-up of recently won deals (new transformational deal with full network carrier, CCTNS). We expect 3%+ $ revenue growth over next three quarters.
Margins to improve in coming quarters: Benefits from successful transition of Morris deal and Re depreciation along with operational efficiency should result in margin improvement in the coming quarters. As such, we are building 80bps EBITDA margin expansion in FY13.
Valuations: NITEC is currently trading at 7x FY13 P/E behind most mid-cap peers. We value the company at 12m forward P/E of 9x to arrive at Mar-13 TP of Rs350, implying an upside of 20%. Maintain BUY.
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Revenues in-line; strong profit on higher other income: Revenues grew 5.9% QoQ to Rs4.7bn, negatively impacted by hedge loss of Rs119mn. Volume growth came in at 0.5% QoQ. EBITDA margin fell by 80bps due to wage hikes (-235bps), partly offset by Re depreciation (+150bps). Net profit was up 25% QoQ, 6% above our expectations, on higher other income due to balance sheet revaluation gains of Rs173.5mn. EPS in the quarter stood at Rs9.6.
Revenue growth ahead of industry: Despite a muted quarter, management was confident of delivering growth ahead of the industry, supported by steady order backlog of US$240mn, healthy deal pipeline, and ramp-up of recently won deals (new transformational deal with full network carrier, CCTNS). We expect 3%+ $ revenue growth over next three quarters.
Margins to improve in coming quarters: Benefits from successful transition of Morris deal and Re depreciation along with operational efficiency should result in margin improvement in the coming quarters. As such, we are building 80bps EBITDA margin expansion in FY13.
Valuations: NITEC is currently trading at 7x FY13 P/E behind most mid-cap peers. We value the company at 12m forward P/E of 9x to arrive at Mar-13 TP of Rs350, implying an upside of 20%. Maintain BUY.
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