TTL – Size & agility and room for positive surprise: The company has a
niche presence in Travel, Transportation & Logistic (38% revenue). A
specialized presence in the segments and small size gives room for strong
growth. It is rated as one of the most preferred vendor in the space. We
are factoring in modest growth expectation of 2.8% CQGR over the next
five quarters, despite reporting strong growth of 9% CQGR over the last 12
quarters.
Insurance – IP led growth in non-life market: NIIT Tech derives ~36% of
revenue from BFSI sector, led by 27% from Insurance. The company’s IP
(ROOM Solution) in general insurance gives them unique capability to
drive growth ahead of peers. The revenue growth has been steady at 6.5%
CQGR over the last seven quarters. We expect stronger growth for
Insurance than overall growth, yielding positive surprise on operating
margin.
Order book strength to give revenue visibility and margin stability: Order
book to be executable over next 12 months grew by 20% YoY to $240m
(@cc $254m, 27% YoY). The strong growth in order book led by fresh
order intake ($83m) improves the revenue visibility for the company for
FY13. Moreover, the management highlighted limited scope of pricing
discussion on existing order book. Hence, we see stable margin
performance with steady revenue growth beating NASSCOM growth
outlook of 11-14% YoY growth.
Valuation and Recommendation – BUY with Target Price Rs 350: NIIT
Tech is a unique IT services provider for TTL and Insurance sector (non-life)
with a 28-year heritage. NIIT Tech is best positioned in the niche IT space
to meet or exceed our above consensus forward estimates and grows
faster than peers. With a P/E multiple of 6.5x, is at steep discount
compared to the peer group, moreover with a predicted EPS growth CAGR
of 16%, the valuation looks compelling.
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