Signs of Stability NIIT Tech :: HDFC Sec

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Signs of Stability
NIIT Tech’s 3QFY15 results were marginally above
our estimates. USD revenues were in-line with
estimates. However, an EBIDTA margin beat and
lower depreciation aided in delivering a PAT beat.
NIIT Tech’s growth has been the weakest amongst
peers. We model a ~1.2% decline in USD revenues for
FY15E. Management indicated at taking fresh
measures to improve growth that include focusing on
signing at least one large deal per quarter and
mining the top 20 accounts. Management further
guided that 3Q had witnessed an improvement in
fresh order intakes with strong new logo wins. We
thus see scope for a turnaround in revenue growth in
FY16E. Given that adjusted EBIDTA margins are at a
multi quarter low (13% as of 3QFY15), we see scope
for margin expansion on the back of improving
growth prospects, G&A leverage and offshore shift.
Owing to modest valuations (9x FY17 EPS), we
believe the risk-return dynamic appears to be
favorable. Upgrade the stock to BUY with a revised
TP of Rs 446/sh (10.5x FY17 EPS).
 3QFY15 Highlights : Revenues for 3QFY15 were at
USD 94.5mn, down 1.2% QoQ and in-line with our
estimates (USD 94.2mn). Revenues grew 1% QoQ in
constant currency. The government vertical aided
growth for the quarter, which included revenues from
purchase for resale software licenses. Revenues in INR
stood at Rs 5.95bn, up 1.2% on a sequential basis.
EBIDTA margin at 14.5% was up 50bps QoQ and above
our estimates (14.2%). PAT came in at Rs 482mn (5%
above our estimates) led by margin beat and lower
depreciation.
 View : We see signs of a turnaround in growth driven
by new logo wins in USA, large deal wins in the
Insurance and Transport vertical and scope for mining
top 20 accounts. We model 5.7/8.8% USD revenue
growth for FY16/FY17E (vs. a decline of 1.2% for FY15E)
and EBIDTA margins of 15.5/15.8% for FY16/FY17E (vs.
14.3% for FY15E). An improvement in free cash flow
generation in 3QFY15 is also a key positive. NIIT Tech
trades at a 42% discount to Mindtree. Modest
valuations (9.1x FY17 EPS) and scope for P/E re-rating
leads us to upgrade the stock to BUY (vs. earlier
stance of NEUTRAL). Rolling over to FY17E, we revise
our TP upwards by 10% to Rs 446/sh.

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010708