NIIT Technologies Outlook steady – Retain BUY :: Prabhudas Lilladher

We met Ms. Pratibha Advani (CFO – NIIT Technologies) to understand the prevailing
business environment and future course of action for the company. According to the
management, the business outlook remains relatively subdued as the deal velocity
has slowed down due to uncertainty in the Euro zone, fiscal cliff in US and impact of
the hurricane ‘Sandy’. Despite uncertainties, the management was confident of
revenue growth in Q3FY13 in constant currency. We retain our ‘BUY’ rating

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􀂄 Optimistic on momentum getting better from Q4FY13: Due to prevailing
uncertainties across the world, the decision-making has been pushed to next
year. The larger deals are taking longer to culminate. However, India business
seems to be on track. Management expects uptick in business activity from
Q4FY13, primarily due to a rebound in the GIS business as Government spending
kicks in due to budgetary flush. Travel & Transportation vertical is expected to
lead the growth for the group. Insurance business shall continue to witness
sluggish growth owing to the process of recapitalization due to recent
calamities. The management expects weak revenue from the vertical and
continues to see good traction on cloud-based services (5-6 deals per quarter).
􀂄 Pricing stable, margin improvement to take a pause: The management was
confident of delivering growth (@ cc) despite headwinds. The margins are likely
to remain in a narrow range due to currency appreciation; however, on a
constant currency basis, margins may improve. Pricing remains relatively stable
for the existing order book. There is a possibility of volume discount.
􀂄 New business model augurs well for future growth: In a bid to enhance their
pricing and value proposition, management intends to adopt innovative
business models i.e. Transaction as a service (outcome-based) and increasing
the proportion of fixed-price contracts.
􀂄 Valuation & Recommendation – Retain ‘BUY’, target price Rs350: The
management remained confident of maintaining growth momentum with stable
margin. We expect order book to help achieve their stated objective. We retain
our ‘BUY’ rating with a target price of Rs350, 9x FY13E earnings estimate