Operating performance improving… • NIIT: :: ICICI Securities, PDF link

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Operating performance improving…
• NIIT reported its Q2FY15 results, which were ahead of our estimates
led by healthy growth in the CLS business
• Revenues declined 1% YoY to | 260.4 crore (| 247.3 crore estimate),
led by 26% YoY growth in the CLS business to | 124.8 crore. The ILS
business declined 21% YoY to | 100.4 crore while SLS declined 11%
YoY to | 31.8 crore
• EBITDA margins declined 230 bps YoY to 7%, above our 6.8%
estimate, led by growth in the higher margin CLS business and cost
optimisation initiatives in the ILS and SLS businesses
• Reported PAT of | 10.3 crore was above our | 4.2 crore estimate led
by margin beat, lower depreciation and interest expense
Growth could return in FY16E…
We expect NIIT to deliver FY14-16E revenue CAGR of 7% vs. average
3.7% decline during FY09-14. For FY15E, we are modelling revenues will
grow 6.4% led by healthy revenue visibility ($164 million) and pending
order book of $62.3 million with 73% executable over next 12 month in
the corporate learning solutions (CLS) business, increasing enrolments –
overall enrolments at 82,571 up 12% QoQ; beyond-IT enrolments up 23%
and contribution up 3% YoY to 27%, Cloud campus enrolments in
individual learning solutions (ILS) and growth in private school contracts
partially offset by closure of government school contracts in the SLS
business.
Margins held well; could expand in FY15E but risk to estimates persists…
Q2 EBITDA margins improved 129 bps QoQ but were down 231 bps YoY
to 7% led by growth in higher margin CLS business and helped in part by
continued cost optimisation initiatives in both ILS & SLS businesses
despite headwinds from negative operating leverage in the ILS business.
Note, in FY09-14, EBITDA margins declined 381 bps to 6.5% vs. 10.3% in
FY09, primarily led by revenue deceleration, high operating leverage in
ILS business & SLS revenues tilted in favour of low-margin government
school contracts. We continue to expect FY15E margins to improve 284
bps to 8.2% led by reasons mentioned above, partially offset by wage
hikes.
Order book status
The ILS pending order book stands at | 195 crore (| 190 crore in Q1) with
72% executable over the next 12 months. CLS fresh order intake was
$20.7 million in Q2 ($16.2 million in Q1) leading to pending order book of
$62.3 million ($62.2 million) with 73% executable over the next 12
months. The SLS pending order book stood at | 395 crore – 26%
executable over the next 12 months – vs. | 417.9 crore in Q1.
Core operating performance improving; maintain HOLD
We estimate NIIT will report revenue, earnings CAGR of 7%, 108% over
FY14-16E (average 8.7% EBITDA margins in FY15-16E). Note, we expect
standalone NIIT to report | 2.6 crore loss in FY15E and | 14.9 crore profit
in FY16E. We continue to value NIIT on SOTP basis to arrive at our target
price of | 45, i.e. a combination of EV/EBITDA multiple (refer exhibit 3)
and applying 15% discount for its holding in NIIT Tech and maintain our
HOLD rating.

LINK
http://content.icicidirect.com/mailimages/IDirect_NIITLtd_Q2FY15.pdf