Oct 15, 2013 ... c-1. 2. Fe b. -1. 3. Ap r-1. 3. Jun-1. 3. Au g-1. 3. Oct-1. 3. (Rs). NIIT ... 42% QoQ to
US$84m due to volatile India order book (Q1FY14 had US$65 ...
NIIT Technologies NIIT Technologies (NIIT Tech) reported revenues/margin below PLe/Consensus expectation due to weakness in Europe. Order intake was softer due to weakness/volatility in India order book. We retain our ‘BUY’ rating with a target price of Rs380.
October 15, 2013 Shashi Bhusan
[email protected] +91-22-66322300
Rating Price Target Price Implied Upside Sensex Nifty
BUY Rs288 Rs380 31.9% 20,548 6,089
(Prices as on October 15, 2013) Trading data Market Cap. (Rs bn) Shares o/s (m) 3M Avg. Daily value (Rs m) Major shareholders Promoters Foreign Domestic Inst. Public & Other Stock Performance (%) 1M 6M Absolute 2.8 2.8 Relative (1.3) (9.1) How we differ from Consensus EPS (Rs) PL Cons. 2014 43.5 42.4 2015 48.1 46.2
17.3 60.2 23.4 31.19% 29.21% 19.94% 19.66% 12M 1.9 (7.9) % Diff. 2.7 4.0
Price Performance (RIC: NITT.BO, BB: NITEC IN)
Source: Bloomberg
Oct-13
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
(Rs) 350 300 250 200 150 100 50 0
Revenue growth muted, margins disappoint: NIIT Tech reported a revenue growth of 8.4% (0.3% @cc) QoQ to Rs5,873m (PLe: Rs5,907m, Cons: Rs5,904m). EBITDA margins expanded by 66bps to 15.1% (PLe: 16%), primarily due to a forex loss accounted. However, PAT grew by 17.3% QoQ to Rs624m (PLe: Rs657m, Cons.: Rs541m).
Order book soft due to weakness in India business: Order book has declined by 42% QoQ to US$84m due to volatile India order book (Q1FY14 had US$65m order from Airport Authority of India). Order book in EMEA grew by 96.2% QoQ to US$51m, whereas America and RoW declined by 64% and 77% QoQ to US$16m and US$17m, respectively. The company bagged 3 clients in Europe, all in Travel and Transportation vertical.
Margins bottomed out, improvement ahead: The current quarter margin got impacted due to cross-currency movement and hedging losses. However, we expect margin of the company to delivery steady improvement in H2FY14. The contracts renewed are either at same realization or up by 4-8%. Also, Morris contract is transformed to outcome-based model.
Why still a BUY? Revenue performance of the company has bottomed out, so has margins. We believe that revenue momentum will pick-up from CY14. Moreover, we expect lower contribution from hardware revenue; outcomebased pricing to push the margin higher.
Valuation & Recommendation – Reiterate “BUY” with target price of Rs380: Positive IATA commentary, ramp-up in government projects and stability in GIS would give steady revenue growth with stable margin. It is currently trading at 6.6x FY14E earnings estimates with an EPS CAGR of 16% (FY13-15E).
Key financials (Y/e March) Revenues (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) Profitability & Valuation EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Net dividend yield (%)
2012 15,764 27.9 2,683 1,972 33.1 7.7 8.6
2013 20,213 28.2 3,296 2,133 35.4 7.1 9.4
2014E 25,128 24.3 4,045 2,621 43.5 22.9 12.0
2015E 28,284 12.6 4,293 2,896 48.1 10.5 13.0
2012 17.0 23.6 23.1 1.0 5.6 8.7 1.9 3.0
2013 16.3 21.2 21.0 0.8 4.7 8.1 1.6 3.3
2014E 16.1 22.1 20.8 0.6 3.8 6.6 1.4 4.2
2015E 15.2 20.9 20.1 0.5 3.4 6.0 1.2 4.5
Source: Company Data; PL Research
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Q2FY14 Result Update
Growth expectation pushed to CY14
NIIT Technologies
Exhibit 1:
Revenue and margin touch softer than PLe/Consensus expectation (Rs m) QoQ
Q2FY13
YoY
5,419
8.4%
5,001
17.4%
5,906.7
Variance(PL VS ACTUAL) ‐0.6%
782
13.3%
848
4.5%
945.1
‐6.3%
15.1%
14.4%
66 bps
17.0%
‐187 bps
16.0%
‐91 bps
Pre Tax Income
913
840
8.7%
595
53.4%
918.5
‐0.6%
Tax
269
296
‐9.1%
146
84.2%
262
2.8%
29%
35%
‐577 bps
25%
493 bps
29%
96 bps
624
532
17.3%
431
44.8%
541
639
‐2.3%
10.27
8.8
17.3%
7.2
43.0%
8.9
10.5
‐2.3%
Y/e March Revenue EBITDA EBITDA Margin
Tax Rate PAT EPS (Rs)
Q2FY14
Q1FY14
5,873 886
Consensus Q2FY14(PLe) 5,904
Source: Company Data, PL Research
Conference call highlights: 1) Q2FY14 Revenue – Insurance: Rs405m (Op. Margin: 17%), Media: Rs357m (14%), Projecta: Rs180m (5%), GIS: Rs225m (15%), CCTNS: Rs470m 2) Non-Linear revenue: 24% 3) ETR for FY14 ~27-28% (Q2FY14: 29.5) 4) 3 new customers in Travel & Transport 6) DSO: 100 days (should come down to ~85-100 days) 7) Capex for Q2FY14: Rs196m, H2FY13: Rs660m in each quarter, FY14: ~Rs2,000m. 8) Net addition -190 employees due to project closure in India 9) Hedge: US$42.5m (Rs59.67m/$) 10) Constant currency order executable: US$253m.
Exhibit 2: Order Intake softer in the US & RoW Fresh Order Analysis ($ m)
Q2FY14
Q1FY14
QoQ gr.
Q2FY13
YoY gr.
USA
16
44
‐63.6%
43
‐62.8%
EMEA
51
26
96.2%
33
54.5%
ROW
17
75
‐77.3%
17
0.0%
Total
84
145
‐42.1%
93
‐9.7%
248
263
‐5.7%
253
‐2.0%
USA
0
1
NA
1
NA
EMEA
3
1
200.0%
2
50.0%
ROW
0
3
NA
0
NA
Total
3
5
‐40.0%
3
0.0%
Q2FY14
Q1FY14
QoQ gr.
Q2FY13
YoY gr.
USA
2,408
2,113
13.9%
1,900
26.7%
Europe
2,114
1,897
11.5%
1,950
8.4%
RoW
1,351
1,409
‐4.1%
650
107.8%
Total
5,873
5,419
8.4%
5,001
17.4%
USA
41.0%
39.0%
200 bps
38.0%
300 bps
Europe
36.0%
35.0%
100 bps
39.0%
‐300 bps
RoW
23.0%
26.0%
‐300 bps
Executable over next 12 months New Customer Addition
Source: Company Data, PL Research Exhibit 3: The US witnesses steady growth By Geography
13.0% 1000 bps
Source: Company Data, PL Research
October 15, 2013
2
NIIT Technologies
Exhibit 4: Growth led by Manufacturing & ramp up in Govt deals By Verticals
Q2FY14
Q1FY14
QoQ
Q2FY13
YoY
Finance Insurance & Banking
1,938
1,626
19.2%
1,650
17.4%
Transportation
2,173
1,951
11.4%
2,100
3.5%
Manufacturing & Retail
352
379
‐7.1%
300
17.4%
Government
587
704
‐16.6%
250
134.9%
Others
822
759
8.4%
700
17.4%
5,873
5,419
8.4%
5,001
17.4%
Finance Insurance & Banking
33.0%
30.0%
300 bps
33.0%
0 bps
Transportation
37.0%
36.0%
100 bps
42.0% ‐500 bps
6.0%
7.0%
‐100 bps
Government
10.0%
13.0%
Others
14.0%
14.0%
Total as % of Total
Manufacturing & Retail
6.0%
0 bps
‐300 bps
5.0%
500 bps
0 bps
14.0%
0 bps
Source: Company Data, PL Research Exhibit 5: Good growth top 5 clients Client metrics Top 5 Clients
Q2FY14
Q1FY14
2,114 705 2,819
Top 6-10 Clients Top 10 Clients
QoQ gr.
Q2FY13
YoY gr.
1,680
25.9%
1,600
32.1%
813
‐13.3%
750
‐6.1%
2,493
13.1%
2,350
19.9%
Non Top 10 Clients
3,054
2,926
4.4%
2,651
15.2%
Total
5,873
5,419
8.4%
5,001
17.4%
Top 5 Clients
36.0%
31.0%
500 bps
32.0%
400 bps
Top 10 Clients
48.0%
46.0%
200 bps
47.0%
100 bps
Non Top 10 Clients
52.0%
54.0%
‐200 bps
53.0%
‐100 bps
Source: Company Data, PL Research Exhibit 6: Onsite growth strong for the quarter Revenue by Delivery Type
Q2FY14
Q1FY14
QoQ gr.
Q2FY13
YoY gr.
Onsite
3,817
3,414
11.8%
3,151
21.2%
Offshore
2,056
2,005
2.5%
1,850
11.1%
5,873
5,419
8.4%
5,001
17.4%
Onsite
65.0%
63.0%
200 bps
63.0%
200 bps
Offshore
35.0%
37.0%
‐200 bps
37.0%
‐200 bps
Total % of Total Revenue
Source: Company Data, PL Research
October 15, 2013
3
NIIT Technologies
Exhibit 7: Expected to hire more freshers in FY14 Employee metrics
Q2FY14
Q1FY14
QoQ gr.
Q2FY13
YoY gr.
Total employees
8,017
8,207
‐2.3%
7,617
5.3%
Net addition
(190)
49
‐487.8%
173
‐209.8%
Utilisation
77.3%
77.3%
0 bps
79.8%
‐250 bps
Attrition
12.4%
12.4%
0 bps
12.7%
‐27 bps
Source: Company Data, PL Research
October 15, 2013
4
NIIT Technologies Income Statement (Rs m) Y/e March 2012 Net Revenue Raw Material Expenses Gross Profit Employee Cost Other Expenses EBITDA Depr. & Amortization Net Interest Other Income Profit before Tax Total Tax Profit after Tax Ex-Od items / Min. Int. Adj. PAT Avg. Shares O/S (m) EPS (Rs.)
15,764 9,876 5,888 — 3,205 2,683 364 — 282 2,601 637 1,964 (8) 1,972 59.6 33.1
2013
2014E
2015E
20,213 13,159 7,054 — 3,758 3,296 567 — 207 2,936 751 2,185 52 2,133 60.2 35.4
25,128 16,233 8,895 — 4,850 4,045 650 — 275 3,670 1,101 2,569 (52) 2,621 60.2 43.5
28,284 18,548 9,736 — 5,443 4,293 717 — 270 3,846 961 2,884 (12) 2,896 60.2 48.1
Cash Flow Abstract (Rs m) Y/e March
2012
2013
2014E
2015E
C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE
1,643 (985) 371 1,029 1,194 2,223 1,063 1,079
2,351 (1,133) (543) 675 1,654 2,329 955 1,169
2,901 (2,262) (723) (83) 2,329 2,246 692 692
2,960 (1,414) (783) 763 2,246 3,009 1,558 1,558
Key Financial Metrics Y/e March Growth
2012
2013
2014E
2015E
27.9 11.6 8.3 7.7
28.2 22.8 8.2 7.1
24.3 22.7 22.9 22.9
12.6 6.1 10.5 10.5
16.1 10.4 20.8 22.1
15.2 10.2 20.1 20.9
(0.1) 23
(0.2) 22
6.6 1.4 3.8 0.6
6.0 1.2 3.4 0.5
30.0 7.5 7.0 26.4
25.0 7.0 6.7 53.8
Revenue (%) EBITDA (%) PAT (%) EPS (%)
Profitability EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%)
17.0 12.5 23.1 23.6
Balance Sheet Net Debt : Equity Net Wrkng Cap. (days)
Valuation PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x)
Earnings Quality Eff. Tax Rate 24.5 Other Inc / PBT 10.8 Eff. Depr. Rate (%) 5.4 FCFE / PAT 54.7 Source: Company Data, PL Research.
October 15, 2013
2014E
2015E
10,941 339 173 11,453 4,661 — 820 5,481 2,329 7,087 3,935 491 11,453
12,787 339 173 13,299 5,998 — 1,094 5,715 2,246 9,455 5,986 491 13,299
14,888 339 173 15,400 6,696 — 1,094 7,119 3,009 11,003 6,893 491 15,401
Quarterly Financials (Rs m) Y/e March Q3FY13
Q4FY13
Q1FY14
Q2FY14
5,372 884 16.5 161 — (14) 709 129 565 565
5,419 782 14.4 148 — 206 840 296 532 532
5,873 886 15.1 155 — 182 913 269 624 624
Net Revenue EBITDA % of revenue Depr. & Amortization Net Interest Other Income Profit before Tax Total Tax Profit after Tax Adj. PAT
Key Operating Metrics Y/e March
5,144 813 15.8 142 — 126 797 230 561 561
2012
2013
2014E
2015E
Total Technical Billed (Headcount) 10,813 Utilization 79.0 Software Dev. Exp. (% of Sales) 62.6 Sales & Mktg. (% of Sales) 20.3 Source: Company Data, PL Research.
13,375 78.2 65.1 18.6
15,114 — 64.6 19.3
16,928 79.0 65.6 19.2
(0.2) 32
8.7 1.9 5.6 1.0
2013
9,222 126 — 9,348 4,234 — 549 3,963 2,223 5,654 3,914 602 9,348
Shareholder's Funds Total Debt Other Liabilities Total Liabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash & Equivalents Other Current Assets Current Liabilities Other Assets Total Assets
16.3 10.6 21.0 21.2
(0.2) 14
Balance Sheet Abstract (Rs m) Y/e March 2012
8.1 1.6 4.7 0.8
25.6 7.1 8.1 54.8
5
NIIT Technologies
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage
% of Total Coverage
60%
54.4%
50% 40% 30%
27.2% 16.8%
20% 10%
1.6%
0% BUY
Accumulate
Reduce
PL’s Recommendation Nomenclature
Sell
BUY
:
Over 15% Outperformance to Sensex over 12-months
Accumulate
:
Outperformance to Sensex over 12-months
Reduce
:
Underperformance to Sensex over 12-months
Sell
:
Over 15% underperformance to Sensex over 12-months
Trading Buy
:
Over 10% absolute upside in 1-month
Trading Sell
:
Over 10% absolute decline in 1-month
Not Rated (NR)
:
No specific call on the stock
Under Review (UR)
:
Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
October 15, 2013
6
