NIIT Technologies - Target Price of Rs. 360 - Dolat Capital

Niche to drive outperformance: NIIT Tech is witnessing incremental traction for large deals across geographies and verticals. Travel & Transportation seems most robust among all and banking weakest of all. Insurance/reinsurance business is reviving with incremental acceptance of its latest offering - ipf3 (average license ticket size if over USD 10mn), and may see reversal in trend by Q1FY14.

- Confidence Intact: The company is confident to do better than industry in FY14 helped by robust 12M order executable book of USD 252mn. It expect sustained momentum from its Manufacturing and Government clients specifically in the US and Asia markets. Europe is likely to remain soft due to existing economic uncertainties.

- New Deal Momentum on: NIIT Tech added fresh orders of about USD 110mn in Q4 leading to USD 252mn of firm business executable over next 12 month basis. It has added 5 new clients (1 in Manufacturing, 2 each in Transport and Government and a USD 10mn renewal from a BFSI client).

- OPM likely to remain in range: EBIT grew by 8% (QQ) at Rs. 723mn (EBIT margin up by 50bps QQ) as it partly recovers in the GIS segment (GIS margin stood at 9% for Q4). The company has already made fresher offers for FY14 and expects wage hikes of about 7% indicating sustained traction and visibility. We believe OPM will remain in narrow band as gains on GIS recovery would be restricted on incremental business coming from relatively less profitable projects such as AAI and AP Govt (SAP implementation).

Key risk: Sustenance of new deal momentum and margin dilution in case Govt share in total revenues increases remains the key concern to our estimate.

View: We remain positive on the stock in view of sustained improvement on operating metrics and strong business visibility amidst uncertainty with a TP of Rs. 360 valued at 7.5x of its FY15E earnings.

Source : Equity Bulls

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