NIIT Technologies :TP: ` 360 Buy: Dolat Capital

View: We maintain our positive call on the stock post the earning call based
on its sustained strong growth, confidence on CY13 demand, robust order
intake and possibility of margin recovery. We maintain our BUY rating with a
TP of ` 360 valued at 7.5x of FY15E EPS of ` 48.
Confidence intact: The company is confident to do better than industry in
FY14 helped by robust 12M order executable book of USD 252mn. It expect
sustained momentum from its Manufacturing and Government clients specifically
in the US and Asia markets. Europe is likely to remain soft due to existing
economic uncertainties.
Results inline: Revenue in reported currency grew by 4.4% QQ at ` 5.4 bn
from ` 5.1 bn in Q3FY13 driven by strong growth in Government projects
(revenues up 47%, contributes 11% of revenues). Travel vertical witnessed
revenues decline of 7% as it exited 2 accounts during the quarter. Revenues
were strong across key projects and segments such as CCTNS, Morris, GIS,
ROOM solutions. However; Proyecta revenues were below par as the key
client Iberia continues to witness business ramp down.
New deal momentum on: NIIT Tech added fresh orders of about USD 110mn
during the quarter leading to USD 252mn of firm business executable over next
12 month basis. It has added 5 new clients (1 in Manufacturing, 2 each in
Transport and Government and a USD 10mn renewal from a BFSI client). The
company expects sustained demand even for the non-linear business segment
both for the managed services and transaction based services in the Morris
account.

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OPM likely to remain the range: EBIT grew by 8% (QQ) at ` 723mn (EBIT
margin up by 50bps QQ) as it partly recovers pressure in the GIS segment (GIS
margin stood at 9% for Q4). The company has already made fresher offers for
FY14 and expects wage hikes of about 7% indicating sustained traction and visibility.
We believe OPM to remain in narrow band as gains on GIS recovery would be
restricted on incremental business coming from relatively less profitable projects
such as AAI and AP Govt (SAP implementation).
Key Highlights
􀁺 Revenue in reported currency grew by 4.4% QoQ at ` 5.4 bn from ` 5.1 bn in
Q3FY13 driven by strong traction in the Government sector (revenues doubled
in H2 over H1).
􀁺 Revenues in the Transport vertical went down by 7% QQ (37% of rev) largely on
project ramp downs in several travel companies in the European market owing
to economic slow down in the region (biggest impact from Iberia airline).
Manufacturing segment revenues grew by 4% - contributing 6% of revenues.
BFSI revenues were up 3% QQ (42% of revenues) driven by strong traction
among the top accounts.
􀁺 EBIT grew by 8% (QQ) at ` 723mn (EBIT margin up by 50bps QoQ) on account
of recovery in the GIS segment and strong execution in the managed services
and platforms driven revenues. We believe the margin matrix to be crucial driver
going forward considering strong business traction from the Government sector.
􀁺 PAT grew by 1% QQ at ` 566 mn – below our est. of ` 607 mn as it booked Fx
losses leading to other income loss of about ` 14mn as against a gain of about
` 126mn in Q3.
Valuation: Our optimistic belief on sustained revenue growth gets further reinforced
on strong revenue growth performance despite the various economic challenges.
We remain positive on the stock in view of its sustained traction in fresh order
intake and client additions supported by its niche capabilities in TTL and Insurance
verticals. We maintain our positive view on the stock and have built in Revenue/PAT
CAGR of 17%/16% over FY13-15E. We maintain our BUY rating on the stock with
a Target Price of ` 360, valued at 7.5x of its FY15E earnings.