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We raise our FY12/13F revenues 11-13% in US$ terms on the back of large deal wins and strong
growth in the core IT business, as a recent beefing up of the sales organisation bears fruit. We
forecast strong 34% services growth in FY12, which we believe can drive a rerating of the stock
closer to its peer group.
Raising our revenue forecasts 11-13% on large deals and current business traction
1Q12 IT services revenues (ex-GIS) grew 8.9% qoq and 32.2% yoy in US$ terms, while lower
headline growth of 3.7% was driven by seasonally lower GIS sales (down 34.5% qoq) and last
quarter’s hardware sales (Rs34m). In addition to demand momentum, we attribute the
performance to a recent beefing up of the sales organisation. Its impact is seen in signing new
business (order intake up 115% yoy and orders executable over 12 months up 18.3% qoq) and
mining existing accounts (top 10 accounts grew 9.5% qoq). We raise our FY12/13F revenue 11%
and 13%, respectively, in US$ terms, building in announced large deals with Eurostar and Morris
Communications and strong traction in the core IT business.
EPS upgrades of c7% for FY12/13F despite factoring in lower large deal margins
1Q12 margins (adjusted for FX) were down 364bp to 18.2%, as we expected, due to salary hikes.
While revenue growth generally augurs well for margins, we build in conservatism on large deals
that involve staff takeover and transition costs (US$2.5m hit guided in 2Q12). Hence we reduce
our FY12/13 EBITDA margin forecasts 137bp/111bp. Nevertheless, our FY12/13 EPS forecasts
each rise 7% on revenue upgrades and lower tax rates, as incremental offshore revenues come
from tax-free SEZ (special economic zones).
Strong revenue growth in FY12 could drive valuations closer to the peer group
We now forecast 34% services revenue growth in FY12 (excluding hardware), driven by a rampup
of large deals and a continued healthy performance in existing business. NIIT Tech’s shares
have traded at a steep discount to its peers (42% currently) due to its lower growth profile, while
its margins have held up better than most of its peers. With the revenue trajectory now visibly
improving, we expect valuations to structurally move closer to the peer group. We forecast an
8.3% revenue CQGR over the next three quarters, which we believe should help bridge NIIT’s
valuation gap with its peers. We raise our TP to reflect our new EPS forecasts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We raise our FY12/13F revenues 11-13% in US$ terms on the back of large deal wins and strong
growth in the core IT business, as a recent beefing up of the sales organisation bears fruit. We
forecast strong 34% services growth in FY12, which we believe can drive a rerating of the stock
closer to its peer group.
Raising our revenue forecasts 11-13% on large deals and current business traction
1Q12 IT services revenues (ex-GIS) grew 8.9% qoq and 32.2% yoy in US$ terms, while lower
headline growth of 3.7% was driven by seasonally lower GIS sales (down 34.5% qoq) and last
quarter’s hardware sales (Rs34m). In addition to demand momentum, we attribute the
performance to a recent beefing up of the sales organisation. Its impact is seen in signing new
business (order intake up 115% yoy and orders executable over 12 months up 18.3% qoq) and
mining existing accounts (top 10 accounts grew 9.5% qoq). We raise our FY12/13F revenue 11%
and 13%, respectively, in US$ terms, building in announced large deals with Eurostar and Morris
Communications and strong traction in the core IT business.
EPS upgrades of c7% for FY12/13F despite factoring in lower large deal margins
1Q12 margins (adjusted for FX) were down 364bp to 18.2%, as we expected, due to salary hikes.
While revenue growth generally augurs well for margins, we build in conservatism on large deals
that involve staff takeover and transition costs (US$2.5m hit guided in 2Q12). Hence we reduce
our FY12/13 EBITDA margin forecasts 137bp/111bp. Nevertheless, our FY12/13 EPS forecasts
each rise 7% on revenue upgrades and lower tax rates, as incremental offshore revenues come
from tax-free SEZ (special economic zones).
Strong revenue growth in FY12 could drive valuations closer to the peer group
We now forecast 34% services revenue growth in FY12 (excluding hardware), driven by a rampup
of large deals and a continued healthy performance in existing business. NIIT Tech’s shares
have traded at a steep discount to its peers (42% currently) due to its lower growth profile, while
its margins have held up better than most of its peers. With the revenue trajectory now visibly
improving, we expect valuations to structurally move closer to the peer group. We forecast an
8.3% revenue CQGR over the next three quarters, which we believe should help bridge NIIT’s
valuation gap with its peers. We raise our TP to reflect our new EPS forecasts.
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