BSE ID : 532541 NSE ID : NIITTECH
RECOMMENDED PRICE 448.65
PEAK FROM RECO 2057.00 358.49%
CURRENT PRICE 1830.00 307.89%
NIIT Tech has expanded in various geographies through various verticals and provides a number of IT Based Services. We initiate with a BUY coverage on NIIT Tech Ltd with a Price Objective of Rs 644.
NIIT Tech has undertaken several initiatives which, in our opinion, are expected to put it on the growth trajectory again. The acquisition of "Incessant Technologies" besides providing traction to revenues and profitability will help it bolster the fast growing digital services business and make inroads into new accounts. The significant reinforcement and changes in front end leadership functions and a new sales incentive policy are aimed at rewarding improved performances and we believe, lead to a resurgent work force.
Our optimism stems from the fact that:
NIIT Tech is looking forward to expanding its presence in the international markets (revenue share estimated to increase from 87% in FY15 to 91% in FY17) by acquiring 17 new logos in various verticals to bolster revenue growth and improve its margins. International revenues are expected to grow at a CAGR of 14% to ` 2,734 crores leading to an overall revenue growth of 12% CAGR to ` 2,996 crores by FY17.
The conscious de-focus from government business in India should lead to a sharp improvement in operating margins by 380 bps to 18% while DSO days are also set to improve to 80 days from the current 93 days.
McKinsey expects global spending on digital services to grow from the current 9% to 36% by FY18. Given NIIT Techs thrust on this segment and the acquisition of Incessant (51% stake) augurs well for the company. Besides plugging a vital gap in its service offering the Incessant acquisition is expected to improve new client adds and revenue potential through cross selling. Incessant Technologies revenues (approx. USD 17 Mn in FY15) are estimated to grow at a robust 20% CAGR over FY15-17. Also, it operates at significantly high margins of approx. 25%.
We initiate with a BUY coverage on NIIT Tech Ltd with a Price Objective of Rs 644 (potential upside of approx. 44% over a period of 18 months), implying a P/E multiple of 14x on its FY17E EPS. At the CMP of Rs 448, the stock is trading at 9.7x its EPS for FY17E.
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