Buy NIIT Technologies - Solace in visibility - Dolat Capital

Comforting Visibility: The biggest comfort in NIIT Tech is its fast growing and healthy order book of about USD 250mn+ (up % YoY) executable over next twelve month. It has added about USD 176mn in H1 and commentary exudes confidence of exceeding NASSCOM guidance of industry growth at 11-14% for FY13. Historically, it has achieved over 1.8x of its NTM forward order position and our revenue estimate of USD 366mn imply about 1.5x of its FY12 closing order book position.

Strong Domain capability: It has carved its niche positioning by developing niche capabilities in various segments of transportation industry (airlines, surface transport, Airports and travel & distribution companies) and insurance vertical (Life, P&C, Reinsurance). It has a strong repository of solutions and platforms for these industry viz, Cosys (Cargo handling), Monalisa (Airline accounting & analytics), Subscribe (Insurance & reinsurance), Exact (GIS), IPF3 (Insurance framework) and others.

Sales team beefed up: It has boosted its sales strength by over 25% in last two years including top hires from large peers (HCL, TCS, Wipro) to target large deals in its niche segment. Its million dollar client count has double from 33 in Jun'10 to 67 at the end of current quarter.

Outlook strong with margin concerns: Management sounds confident on the outlook but sees some pressure on profitability considering certain onetime cost such as transition cost of Sabre Manila center acquisition, hardware component in the CCTNS deal and stable to declining pricing outlook. We believe currency tailwinds and volume growth would provide cushion against most of these pressures and would support OPM in the narrow band of 14-15% in FY13-14E.

View: We believe NIIT Tech perfectly fits in our criteria of differentiation model with business visibility perfectly and thus we reiterate our positive view with a Buy rating and TP of Rs.365 valued at 8x of its FY15E EPS of Rs.46. Historically, it has been trading at a lower multiple in the midcap space owing to its inconsistent growth in past, which we believe would fade away and thus could lead to even higher price performance.

Source : Equity Bulls

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