NIIT Technologies Ltd - Awaiting Growth; Result Update Q2FY15 :: Edelweiss

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NIIT Technologies Ltd’s (NIIT Tech) reported Q2FY15 revenues of USD 97.2 mn (0.7% QoQ growth) was below our estimates, led by continued ramp-downs in US BFSI clients and delayed ramp-ups of new won deals. EBITDA margins improved by 60bps QoQ to 14% due to improved utilization and hedging gains. NIIT Tech won fresh deals worth USD 103mn during the quarter. The company sees FY15 as a year of restructuring, while increased discretionary spends from US and improved order pipeline will drive growth in FY16 in both T&T and BFSI verticals.

Revenue below estimates; margins surprise 

NIIT Tech’s Q2FY15 revenues at USD 97.2mn (0.7% QoQ growth) were below our estimate mainly due to continued ramp-downs in large US BFSI clients. In rupee terms, the revenues came in at INR 588 cr, up 1.9% QoQ. EBITDA margins improved by 60bps QoQ to 14% mainly due to better utilisation (up 60bps QoQ) and higher hedging gains of INR 9.6 cr.  Going forward, we expect margins to increase to 15% levels due to improvement in utilisation as growth picks up. New order intake of USD 124mn (US: $46mn, EMEA: $21mn and RoW: $36mn) led to an executable order backlog of USD 298mn (up 1.0% QoQ and 20% YoY) for the next 12 months. PAT came in below our estimate at INR 40 cr, down 7.6% QoQ, negatively impacted by higher depriciation and tax rates.

Healthy pipeline and investments to drive growth

Post the induction of Mr. Sudhir Chaturvedi, NIIT Tech has restructured its business model and will focus on a four-point agenda to drive growth. 1.) scaling & growing US business 2.) carved out IMTS as a separate unit for large deal wins 3.) continued focus on maintaining leadership position in T&T vertical and 4.) greater emphasis on digital services. We believe that the momentum remains intact for the company as it ramps up large deals won earlier. In addition, the management has indicated they are currently pursuing three large deals and has a healthy order pipeline, which gives us the confidence for a decent FY15. We expect sustained traction in new deal additions going forward given the incremental focus on US geography, BFSI/T&T verticals and IMS service offering.

LINKhttps://www.edelweiss.in/research/NIIT-Technologies-Ltd--Awaiting-Growth;-Result-Update-Q2FY15/10005073.html