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Research
NIIT - Q4FY12 Result update - Centrum
Posted On : 2012-05-16 11:15:49( TIMEZONE : IST )
Focus on returns
NIIT's Q4FY12 numbers exclude Element K business. While topline was in line with our estimates, adjusting to one off in school learning solutions, the operational margin was better than our expectation. The Individual Learning Solution (ILS) and School Learning Solution (SLS) had higher margins which led to flat YoY EBITDA margin to 13.9% on a like-to-like basis. We have marginally revised our estimates for the SLS segment considering the challenging environment and increased losses in Skill Building Solution (SBS) considering strong ramp up in centres in the next 2-3 years. Accordingly, we have revised our target price lower to Rs56 based on marginal reduction in profit estimation. We retain Buy rating on attractive valuations and improvement in return ratios.
- Topline in line; EBITDA margin above estimates: NIIT reported 5.7% decline in topline to Rs3.1bn against our estimate of Rs2. 65bn as the Element K business was removed from Q3 due to its sale to SkillSoft. On a like-to-like basis, revenue was up 17% YoY to Rs2.6bn. EBITDA margin was higher than our estimates at 14% as ILS and SLS had better margins in Q4. SLS reported one time pass through hardware sale of Rs481mn which inflated the topline. Adjusting to one off sale in SLS, EBITDA margin was higher at 9.6% on strong addition to the private school segment as the company continued to invest in ramping up operations and hiring sales force to win more school orders going forward.
- Individual Learning Solution (ILS) shows better than expected results: ILS registered 13.8% YoY growth in revenue to Rs1.5bn on the back of 7.8% growth in enrollments. Operating margin contracted by 114bps to 18% as the company is integrating centers and cloud campus related expenses went up during the period. Going forward, short term courses will see better enrollments compared to long term ones.
- Balance Sheet down 16.3%; net cash Rs67mn at the end of Q4: The sale of Element K business is showing its positive impact on the operational performance of the company in our opinion. Net debt has reached Rs67mn on account of cash inflow and return ratio has also improved to 18% in FY12. With marginal improvement in operating margin, we expect the RoCE to inch up despite capex in SBS.
- Cheap valuations; Reiterate Buy: We continue to like the stock due to cheap valuations, better sales mix, potential to expand margins in the ILS and SLS segments and improvement in return ratios. We have reduced our revenue estimates marginally for FY12E and FY13E to factor in lower revenue growth in SLS segments and increase in capex in SBS segment. Contract expiry of government schools and digital content solution to the private school segment could put pressure on realizations. Revision in estimates has led to reduction in target price to Rs56 (Rs60 earlier). We re-iterate our Buy rating on the stock as it gives an upside of 32.5% with a dividend yield of 3.8% (on Rs1.6 dividend per share).
