ICICI Direct recommended hold rating on NIIT Technologies with a target price of Rs 1395 in its research report dated May 06, 2019.
ICICI Direct's research report on NIIT Technologies
NIIT Technologies reported below estimated quarterly numbers on the operational front. US$ revenues grew 2.3% QoQ to $137.9 million (vs. our expectation of $140.19 million) led by BFSI and transportation, which grew 9.1% and 6.2% QoQ, respectively. Insurance among verticals declined 4.5% QoQ due to a delay in closure of a deal. The company indicated that the deal is expected to be closed in the current quarter. Digital revenues now account for 30% of revenues and increased 5.8% QoQ, 30% YoY. On the margin front, the EBITDA margin declined 100 bps QoQ to 17.6%. The company had incurred one-off expenses (~Rs 5.7 crore) related to fringe benefit tax in Australia and increase in non-recurring legal & professional expenses on account of M&A activities. Adjusting for these expenses booked, margins were at 18.1% (vs. our estimate of 18.4%). Going forward, based on the order book and healthy deal pipeline, we expect revenue growth of 11% CAGR in FY19-21E with EBITDA margins of 17.8% in FY21E.
Outlook
Digital revenue trajectory, healthy deal wins and positive outlook across industry verticals are key positives, going ahead. However, divestment in GIS business and delay in deal closure would impact FY20E financials. Consequently, we change our recommendation to HOLD with a revised target price of Rs 1395 per share (PE of 16x on FY21E EPS).
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