Result Update: NIIT Ltd - BUY - TP Rs.110 - Kotak

NIIT Ltd 2QFY19 revenue were above our estimates at Rs.22.9bn v/s our estimate of Rs.22.3bn. Margins at 9.58% were about 15bps above our estimates. The beat was on the back of higher than expected growth in SNC business and Corporate Learning Business which offset the sharp de growth in School Business.

Key Highlights

- NIIT Ltd 2QFY19 performance was above our estimates on all fronts. Revenue grew by 10% YoY. EBIDTA margin at 9.6% were too above our estimates by about 15bps due to higher than expected margins in SNC business at 1.5%. Corporate Learning Group (CLG) (71% of revenue) grew by 28% YoY and has been leading the performance which is expected to continue the momentum, going forward.

- SNC and school business reported a de growth of 13.6% and 45% YoY respectively. SNC which contributed about 27% of the revenue for the company reported revenue of Rs.617mn for the quarter. EBITDA margins for SNC business were up by 300bps QoQ at 1.5%. School business which contributes about 2% of the total revenue for the company reported revenue of Rs.51mn for the quarter. School business remains a loss making business for the company. Going forward, margins in SNC and school business are expected to improve with revenue growth and completion of cost related to exit of school business.

- Revenue visibility and no of MTS clients remains strong for CLG business at USD 226mn and 40 clients, respectively. Within SNC business share of beyond IT and enrollment was at 37% and 33,966 from 36% and 33,081 in previous quarter. Uptake in share of beyond IT is a bit slower than expected whereas number of enrollment continue to remains strong.

Valuation & outlook

SNC and school business have been a constant drag on overall financial performance of the company, and we believe it would take few more quarters to stabilize. CLG continues to report 25%+ growth and management remains confident of continuing the momentum going forward. We have marginally lowered our revenue estimates and expect revenue growth of 9% CAGR over FY18-20E and EBITDA margin to improve by 190bps (v/s 230bps earlier) over FY18-20E. We maintain BUY with a revised target price of Rs.110 (Rs.125 earlier).

Shares of NIIT LTD. was last trading in BSE at Rs.71.7 as compared to the previous close of Rs. 72.15. The total number of shares traded during the day was 95690 in over 1159 trades.

The stock hit an intraday high of Rs. 74.9 and intraday low of 71.25. The net turnover during the day was Rs. 6990812.

Source : Equity Bulls

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