Services business refocus to aid margins…
NIIT Tech’s (NTL) Q3FY14 earnings gave insights on its execution strategy
to achieve the aspirational $1 billion revenue goal in the next five years.
The company seems to have streamlined its corporate agenda and has
identified key verticals, geographies and services to achieve sustainable
above-industry-average growth. NTL will focus on 1) scaling up the US
business, 2) becoming a preferred vendor in its largest verticals, BFSI and
travel, 3) driving and consolidating its presence in the IMS space and 4)
large deal focus, similar to $300 million won in Q3. However, 90% of this
win was renewal while 10% was new-scope. NTL needs several such
new-scope deals to improve its order intake run-rate given government
business defocus may pressurise order book growth in FY15E.
Result summary
Q3FY14 dollar revenues declined 0.8% QoQ to $94.8 million and were
below our $95.7 million (+0.2%) estimate led by lower hardware (PFR)
revenues while services business grew 3.6% in constant currency. Rupee
revenues were flat QoQ (| 587.3 crore) and below our 1.3% QoQ (| 595
crore) growth estimate. EBITDA margins came in at 16.3% (+121 bps
QoQ), above our 15.4% estimate, led by a mix shift towards services
revenues. Reported PAT of | 53.1 crore was below our | 54.4 crore
estimate led by lower revenue and other income loss vs. profit estimate.
NTM executable order backlog rises 6.9% QoQ
Fresh order intake of $377 million (US: $320 million, EMEA: $43 million,
RoW: $14 million) in Q3 was led by the $300 million renewal and vendor
consolidation contract from a top BFSI client in the US. This takes the
next 12 month executable order backlog to $265 million (vs. $248 million
in Q2). However, normalised Q3 fresh order intake stands at $107 million
as 90% of it was renewal while only 10% was new-scope.
Services business refocus & likely improving margin profile dictates BUY
We estimate NIIT Tech will report revenue, EPS CAGR of 15.1% each over
FY13-15E (average 16.2% EBITDA margins in FY14-15E), vs. 16.5%, 9.5%
reported during FY08-13 (average 18.4% margins). The commentary
suggests EBITDA margins could revert to their mean (staggered ~100
bps improvement every year starting FY15E) led by improving revenue
mix. Government business defocus, likely improving margin profile &
execution and ability to win large deals lead to a modest target multiple
raise to 8.7x (7x earlier) and target price revision to | 415.
��
NIIT Tech’s (NTL) Q3FY14 earnings gave insights on its execution strategy
to achieve the aspirational $1 billion revenue goal in the next five years.
The company seems to have streamlined its corporate agenda and has
identified key verticals, geographies and services to achieve sustainable
above-industry-average growth. NTL will focus on 1) scaling up the US
business, 2) becoming a preferred vendor in its largest verticals, BFSI and
travel, 3) driving and consolidating its presence in the IMS space and 4)
large deal focus, similar to $300 million won in Q3. However, 90% of this
win was renewal while 10% was new-scope. NTL needs several such
new-scope deals to improve its order intake run-rate given government
business defocus may pressurise order book growth in FY15E.
Result summary
Q3FY14 dollar revenues declined 0.8% QoQ to $94.8 million and were
below our $95.7 million (+0.2%) estimate led by lower hardware (PFR)
revenues while services business grew 3.6% in constant currency. Rupee
revenues were flat QoQ (| 587.3 crore) and below our 1.3% QoQ (| 595
crore) growth estimate. EBITDA margins came in at 16.3% (+121 bps
QoQ), above our 15.4% estimate, led by a mix shift towards services
revenues. Reported PAT of | 53.1 crore was below our | 54.4 crore
estimate led by lower revenue and other income loss vs. profit estimate.
NTM executable order backlog rises 6.9% QoQ
Fresh order intake of $377 million (US: $320 million, EMEA: $43 million,
RoW: $14 million) in Q3 was led by the $300 million renewal and vendor
consolidation contract from a top BFSI client in the US. This takes the
next 12 month executable order backlog to $265 million (vs. $248 million
in Q2). However, normalised Q3 fresh order intake stands at $107 million
as 90% of it was renewal while only 10% was new-scope.
Services business refocus & likely improving margin profile dictates BUY
We estimate NIIT Tech will report revenue, EPS CAGR of 15.1% each over
FY13-15E (average 16.2% EBITDA margins in FY14-15E), vs. 16.5%, 9.5%
reported during FY08-13 (average 18.4% margins). The commentary
suggests EBITDA margins could revert to their mean (staggered ~100
bps improvement every year starting FY15E) led by improving revenue
mix. Government business defocus, likely improving margin profile &
execution and ability to win large deals lead to a modest target multiple
raise to 8.7x (7x earlier) and target price revision to | 415.
No comments:
Post a Comment