Prabhudas Lilladher is bullish on NIIT Technologies and has recommended buy rating on the stock with a target of Rs 440 in its July 15, 2014 research report.
"NIIT Technologies (NIIT Tech) Q1FY15 performance was below PLe/Consensus' expectation. The company reported order intake of $124m (‐14.5% YoY), with order executable improving marginally by 1.7% to $295m. We revise our TP to Rs440 (from Rs510) as we revise our estimates down."
"NIIT Tech reported a revenue growth of 1.4% QoQ to US$96.5m (PLe: US$99.4m, Cons.: US$97.7m) and declined by 1.9% QoQ to Rs5,776m (PLe: Rs5,942m, Cons: Rs5,839m). EBITDA margins eroded by 171bps to 13.4% (PLe: 14.5%, Cons.: 14.5%), due to rupee appreciation, wage hike and ramp‐down. EPS declined by 30.2% QoQ to Rs7.11 (PLe: Rs8.3, Cons.: Rs8.5). Fresh Order intake for NIIT Tech was $144m (5yr avg.: $105m) driven by three wins in the USA and one in EMEA, however, it declined by 14% YoY. The order executable over the next 12 months grew by 12.2% YoY to $295m. The company is chasing 3 large deals ($25mn+) and expected to close at least one large deal each quarter. The management highlighted ramp‐down in two BFSI (the US) clients during the quarter that is likely to spill over the next quarter (Q2FY15) because the ramp‐down picked up only towards the end of the quarter. The management expect steady pick‐up in revenue and margin in H2FY15; however, the concern on near term earnings volatility persists."
"We revise our revenue and margin expectations downwards for FY15E and FY16E (Exhibit: 2) as we see slower revenue momentum for the company. We expect muted growth at the bottom‐line as newly‐signed MSP/IMS deals involve upfront cost and weaker margin profile. The management expects exit EBITDA margin at ~16%. Growing fresh order intake and improved deal pipeline gives revenue visibility; however, clients' specific issues marred growth at topline and bottomline over the last two quarters. We expect stock to remain under pressure in the near term. But, we are factoring in improved revenue momentum in H2FY15 along with margin uptick. We revise our TP to Rs440, 10x FY16E earnings estimate," says Prabhudas Lilladher research report.
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