Buy NIIT Technologies - Prabhudas Lilladher

TTL – Size & agility and room for positive surprise: The company has a niche presence in Travel, Transportation & 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 preferred 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 7% CQGR over the last 12 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 book strength to give revenue visibility and pricing stability: Order book to be executable over the next 12 months grew by 5.4% YoY to $253m. The strong growth in order book led by fresh order intake ($93m) improves the revenue visibility for the company for FY13. Moreover, the management was cautious on the pricing environment and highlighted possible pressure in BFS segments. However, the existing order book is unlikely to have any pricing negotiation, hence, provide stability to pricing.

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.

Source : Equity Bulls

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