NIIT Technologies - Outlook steady - Retain BUY - Prabhudas Lilladher

We met Ms. Pratibha Advani (CFO - NIIT Technologies) to understand the prevailing business environment and future course of action for the company. According to the management, the business outlook remains relatively subdued as the deal velocity has slowed down due to uncertainty in the Euro zone, fiscal cliff in US and impact of the hurricane 'Sandy'. Despite uncertainties, the management was confident of revenue growth in Q3FY13 in constant currency. We retain our 'BUY' rating.

- Optimistic on momentum getting better from Q4FY13: Due to prevailing uncertainties across the world, the decision-making has been pushed to next year. The larger deals are taking longer to culminate. However, India business seems to be on track. Management expects uptick in business activity from Q4FY13, primarily due to a rebound in the GIS business as Government spending kicks in due to budgetary flush. Travel & Transportation vertical is expected to lead the growth for the group. Insurance business shall continue to witness sluggish growth owing to the process of recapitalization due to recent calamities. The management expects weak revenue from the vertical and continues to see good traction on cloud-based services (5-6 deals per quarter).

- Pricing stable, margin improvement to take a pause: The management was confident of delivering growth (@ cc) despite headwinds. The margins are likely to remain in a narrow range due to currency appreciation; however, on a constant currency basis, margins may improve. Pricing remains relatively stable for the existing order book. There is a possibility of volume discount.

- New business model augurs well for future growth: In a bid to enhance their pricing and value proposition, management intends to adopt innovative business models i.e. Transaction as a service (outcome-based) and increasing the proportion of fixed-price contracts.

- Valuation & Recommendation - Retain 'BUY', target price Rs350: The management remained confident of maintaining growth momentum with stable margin. We expect order book to help achieve their stated objective. We retain our 'BUY' rating with a target price of Rs350, 9x FY13E earnings estimate.

Source : Equity Bulls

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