NIIT Technologies - Light at the End of the Tunnel; Result Update Q3FY15 :: Edelweiss, report

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NIIT Technologies Ltd`s (NIIT Tech) Q3FY15 revenue degrew by 1.2% QoQ to USD 96.1 mn (1.0% growth in constant currency) was inline with our estimates. EBITDA margins improved 50bps QoQ to 14.5% mainly due to higher hedge gains and lower hardware revenues. Growth during the quarter was driven by BFSI and Manufacturing, which grew by 1.2% QoQ, respectively. NIIT Tech won fresh deals worth USD 109mn (up 5.8% QoQ) during the quarter. The company sees increased discretionary spends from US and improved pipeline driving its growth in FY16 for both T&T and BFSI verticals.

Revenue and PAT inline

NIIT Tech Q3FY15 revenues grew by 1.2% QoQ at INR 595cr, was in line with our estimate. EBITDA margins improved 50bps QoQ to 14.5% mainly due to higher hedge gains and lower hardware revenues. New order intake of USD 109mn (US: $61 mn, EMEA: $25 mn and RoW: $23 mn) led to an executable order backlog of USD 296 mn over the next 12 months. PAT came in at INR 48.2cr, up 20.5% QoQ, positively impacted by lower tax rate and depreciation during the quarter.

Performance largely driven by BFSI and Manufacturing; IMS & IP based deals foster growth

During the quarter, NIIT Tech witnessed good traction in BFSI and Manufacturing verticals, which grew by 1.2% QoQ, respectively. However, there was a decline of 3.6% in the T&T vertical led by seasonal weakness. During Q3FY15, the company`s Top 5 clients grew by healthy 1.2% QoQ, while Top 10 clients grew by 1.2% QoQ. ADM, the largest service line (60% of revenue), de-grew 3.6% QoQ, while IP-based and managed revenues grew by 1.2% QoQ. Management expects T&T and BFSI verticals to drive incremental growth for the full year led by managed services.

Worst may be over on operating margins

Current level of operating margins is expected to be the bottom. We note that increasing cost of lateral employees and absorption of costs from acquisitions, along with an increase in sales and marketing personnel has led to successive disappointment on the operating margin front. We note that NIIT Tech is taking steps and increasing operational efficiency. With expected hiring from campus, better SG&A leverage, higher utilization, recovery in GIS business, we expect margins improvement to continue.

LINK
https://www.edelweiss.in/research/NIIT-Technologies--Light-at-the-End-of-the-Tunnel;-Result-Update-Q3FY15/10005443.html