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We initiate coverage on NIIT Technologies (NIIT Tech) with a ‘BUY’ rating and a
target price of Rs350. In our view, the stock is trading at a discount to peers despite
improving margin profiles and order book. The current multiple 6.5x FY13e earnings
estimates is ~30% discount to peers. Our thesis of ‘BUY’ rests on three pillars.
TTL – Size & agility and room for positive surprise: The company has niche
presence in Travel, Trasportation & Logistic (38% revenue). A specialized
presence in the segments and small size gives room for strong growth. It is rated
as one of the most prefered vendor in the space. We are factoring in modest
growth expectation of 2.8% CQGR over the next five quarters, despite reporting
strong growth of 10% CQGR over the last 11 quarters.
Insurance – IP led growth in non‐life market: NIIT Tech derives ~36% of revenue
from BFSI sector, led by 27% from Insurance. The company’s IP (ROOM Solution)
in general insurance gives them unique capability to drive growth ahead of
peers. The revenue growth has been steady at 6.5% CQGR over the last seven
quarters. We expect stronger growth for Insurance than overall growth, yielding
positive surprise on operating margin.
Order Intake strength still not captured in growth: Revenue growth over the
forward two quarters follows the trajectory of the order intake at the beginning
of the period. Our analysis suggests that NIIT Tech, therefore, has a low
downside risk because forward revenue forecasts does not exceed its current
level of order intake grew by 143% YoY for 9MFY12 (v/s 9MFY11)
Valuation and Recommendation – BUY with Target Price Rs 350: NIIT Tech is a
unique IT services provider for TTL and Insurance sector (non-life) with a 28-year
heritage. NIIT Tech is best positioned in the niche IT space to meet or exceed our
above consensus forward estimates and grows faster than peers. With a P/E
multiple of 6.5x, is at steep discount compared to the peer group, moreover
with a predicted EPS growth CAGR of 16%, the valuation looks compelling.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We initiate coverage on NIIT Technologies (NIIT Tech) with a ‘BUY’ rating and a
target price of Rs350. In our view, the stock is trading at a discount to peers despite
improving margin profiles and order book. The current multiple 6.5x FY13e earnings
estimates is ~30% discount to peers. Our thesis of ‘BUY’ rests on three pillars.
TTL – Size & agility and room for positive surprise: The company has niche
presence in Travel, Trasportation & Logistic (38% revenue). A specialized
presence in the segments and small size gives room for strong growth. It is rated
as one of the most prefered vendor in the space. We are factoring in modest
growth expectation of 2.8% CQGR over the next five quarters, despite reporting
strong growth of 10% CQGR over the last 11 quarters.
Insurance – IP led growth in non‐life market: NIIT Tech derives ~36% of revenue
from BFSI sector, led by 27% from Insurance. The company’s IP (ROOM Solution)
in general insurance gives them unique capability to drive growth ahead of
peers. The revenue growth has been steady at 6.5% CQGR over the last seven
quarters. We expect stronger growth for Insurance than overall growth, yielding
positive surprise on operating margin.
Order Intake strength still not captured in growth: Revenue growth over the
forward two quarters follows the trajectory of the order intake at the beginning
of the period. Our analysis suggests that NIIT Tech, therefore, has a low
downside risk because forward revenue forecasts does not exceed its current
level of order intake grew by 143% YoY for 9MFY12 (v/s 9MFY11)
Valuation and Recommendation – BUY with Target Price Rs 350: NIIT Tech is a
unique IT services provider for TTL and Insurance sector (non-life) with a 28-year
heritage. NIIT Tech is best positioned in the niche IT space to meet or exceed our
above consensus forward estimates and grows faster than peers. With a P/E
multiple of 6.5x, is at steep discount compared to the peer group, moreover
with a predicted EPS growth CAGR of 16%, the valuation looks compelling.
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