Emkay Global Financial Services Ltd | NIIT Tech (ACCUMULATE, CMP Rs 470, TP Rs 560) Mar’17 quarter results: Solid performance keeps the promise alive Inbox x

NIIT Tech (ACCUMULATE, CMP Rs 470, TP Rs 560) Mar’17 quarter results: Solid performance keeps the promise alive

NIIT Tech’s Mar’17 quarter results keep the promise alive in line with our sectoral thesis of expecting an improvement in operational/financial performance for Tier II techs after a tough FY17/CY16. The company ended FY17 with the highest quarterly margins through the year at 17.6% and in line with management’s indication of exiting FY17 at margins of ~17.5%. More importantly the company’s order intake remains decent. DSO declined to the company’s lowest ever in the company’s reporting history.

We currently have an ACCUMULATE rating on the stock with a TP of Rs 560. We would expect a positive reaction to these results even though the stock has rallied somewhat in the run up to the results. We find comfort in valuations at ~10x/9x FY18/19E P/E with Cash accounting for ~25% of the current market cap.

Mar’17 quarter results details
· NIIT Tech reported revenues at Rs 7.2 bn (+3.4% QoQ , +4.6% YoY) ahead of both our and consensus expectations. Constant currency sequential growth at 3.6% QoQ is good.
· EBITDA margins improved by 80 bps sequentially to 17.6% aided by growth/SGA leverage and in line with management outlook of exiting FY17 with EBITDA margins of ~17.5%.
· Net profits at Rs 740 mn (+19% QoQ , -4.5% YoY) were ahead of our expectations aided by operational beat and lower taxes ( tax rate of 10.4% V/s 25% in Dec’16 quarter).
· Order intake during the quarter at US$ 120 mn during the quarter V/s US$ 101 mn in Dec’16 quarter with Executable order book at US$ 320 mn ( V/s US$ 311 mn as of Dec’16 quarter).
· Company has announced a final dividend of Rs 12.5 for FY17 , stepping up the payout to 28% for the year, similar to the trend seen at peers.
· DSO reduced further by 5 days QoQ to 64 days and is the lowest in the company’s reporting history helped by revenue mix change over the last couple of years and focus on operational optimisation.
· Cash as of FY17 end has increased to Rs 120/share , nearly accounting for 25% of the current market cap

In Rs mn
Q4FY17A*
Q3FY17
QoQ (%)
Q4FY16
YoY(%)
Q4FY17E
Net sales (US$ mn)
106.5
102.9
3.5
101.9
4.5
104.2
Net sales (INR Mn)
7,176
6,938
3.4
6,863
4.6
7,031
Revenues (Ex pass through & Hedge Losses)
7,019
6,812
3.0
6,857
2.4
6,981
Operating expenses
5,916
5,776
5,614
5,832
EBITDA
1,260
1,162
8.4
1,249
0.9
1,200
Margins (%)
17.6
16.7
80
18.2
(60)
17.1
Depreciation
312
321
322
335
EBIT
948
841
12.7
927
2.3
864
Margins (%)
13.2
12.1
109
13.5
12.3
Other income
252.0
59.0
327.1
66.0
68.8
Pre-tax profit
1,200
900
33.3
993
20.8
933
Tax provided
125.0
228.0
179.0
228.6
Profit after tax
1,075
672
814
705
Minority Interest
72.0
48.0
39.0
45.0
Emkay Net profit
740
624
18.6
775
-4.5
660
EPS, Rs
12.0
10.1

12.7

10.7
*Note that we are adjusting the P&L numbers for the one time revenues and the amount received from the settlement with Govt.

Regards,
Sukriti Kumar
+91 9833252547