Buy NIIT Technologies - CMP: Rs.281, TP: Rs.350 - Prabhudas Lilladher

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 and Recommendation - BUY with Target Price Rs350: 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 6.1x, 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

Keywords