Buy NIIT Technologies; target of Rs 1140: Prabhudas Lilladher

Prabhudas Lilladher's research report on NIIT Technologies

NIIT Tech's Q4FY18 results beat our estimates on Revenues, EBIDTA margin and PAT. This marks the fourth consecutive quarter of steady execution which raises momentum for FY19. Revenues at USD121.4mn were up 5.4% QoQ above our estimates (Ple: USD118.6mn).  Constant currency growth for the quarter stood at 4.3% QoQ led by higher growth in Incessant and uptick in GIS business owing to seasonality. EBIDTA margin at 18% up 90bps QoQ was above our estimate (PLe: 17.5%). Adjusted EBIDTA Margin (excluding Forex hedge gains) stood at 17.4% for 4QFY18 up 130bps QoQ. Strong exit EBIDTA margin would also put NIIT Tech is sweet spot on the margin front for FY19. Mr Sudhir Singh (CEO of the company effective January 2018) has cited restructuring the business into a Vertical centric sales and delivery ( vs Geography driven Sales  earlier). Mr Sudhir also appointed new heads for the Insurance and BFS verticals and also cited improving incentive structure for Sales team to drive growth impetus. NIIT Tech also created a new service line to focus on Robotic Process Automation. Aided by strong deal momentum, NIIT Tech anticipates double digit revenue growth for FY19E in constant currency. NIIT tech also guided for YoY EBIDTA margin expansion for FY19.

Outlook

NIIT Tech has a robust vertical mix (Insurance, Travel and BFS) with marquee Top 20 clients. We believe increased aggression on sales can enable robust revenue momentum.  Revise TP upwards by 30% to Rs1140/sh (17.5x FY20E EPS vs 14x FY20E EPS earlier). Retain BUY.

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