NIIT BUY. Performance Highlights CMP. `55 Target Price `68. 4QFY2011 Result Update Education. Investment Period 12 Months

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1 4QFY2011 Result Update Education May 11, 2011 NIIT Performance Highlights (` cr) 4QFY11 4QFY10 % chg (yoy) Angel Est. % Var Net revenue (1.0) EBITDA (14.9) 53.0 (23.7) EBITDA margin (%) (362)p 16.2 (371)bp PAT For 4QFY2011, NIIT s results were in line with our expectations on the revenue front but were disappointing on the operational front. Revenue growth was driven by all businesses, but operational performance was dented due to the SLS business, which posted a 1,557bp yoy dip in EBITDA margin. We have valued NIIT on an SOTP basis, arriving at a target EV/EBITDA of 4.3 on FY2013E consolidated EBITDA of `213.4cr, and added the company s stake in NIIT Technologies (with holding discount of 20%). We recommend Buy on the stock with a target price of `68. Quarterly highlights: Consolidated revenue came in at `324cr, up 9.8% yoy. Revenue from ILS-IT, SLS and CLS businesses increased by 6.7%, 16.5% and 9.5% yoy to `122cr, `37cr and `153cr, respectively. Revenue from new business grew by 27.2% yoy to `11.7cr. Blended EBITDA margin declined by 362bp yoy to 12.5% due to margin decline in all its business segments. EBITDA margin decline in the SLS segment was extensive at 1,557bp yoy to 7.5%. EBITDA margin of the ILS and CLS business segments declined by 205bp and 226bp yoy to 22.6% and 7.9%, respectively. Outlook and valuation: The hiring environment in the Indian IT sector is strengthening, as indicated by Indian IT players such as Infosys and TCS aiming to collectively hire ~1,05,000 people in FY2012. Thus, we expect ILS to record strong growth of 14% yoy in FY2012, with strengthening of the hiring environment expected to result in return in demand for vocational courses. With developed economies such as the US returning to growth, we expect the discretionary spend related to training outsourcing, learning products and managed training services to turn robust and expect 7% yoy growth in the CLS business. At the CMP, the stock is trading at EV/EBITDA of 4.3x FY2013E EBITDA, but the stake in NIIT Technologies provides for strong upside. Hence, we recommend Buy on the stock with a target price of `68. Key financials (Consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013E Net sales 1,149 1,199 1,248 1,401 1,545 % chg Net profit % chg (7.7) (1.2) 24.6 EBITDA margin (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) BUY CMP `55 Target Price `68 Investment Period 12 Months Stock Info Sector Education Market Cap (` cr) Beta 52 Week High / Low /43 Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code 2 18,585 5,565 NIIT.BO NIIT@IN Shareholding Pattern (%) Promoters 34.0 MF / Banks / Indian Fls 38.4 FII / NRIs / OCBs 0.4 Indian Public / Others 27.3 Abs. (%) 3m 1yr 3yr Sensex NIIT Ltd (18.5) (48.4) Srishti Anand Ext: 6820 srishti.anand@angelbroking.com Ankita Somani Ext: 6832 ankita.somani@angelbroking.com Please refer to important disclosures at the end of this report 1

2 Exhibit 1: 4QFY2011 performance (` cr) 4QFY11 3QFY11 % chg (qoq) 4QFY10 % chg (yoy) FY2011 FY2010 % chg (yoy) Net revenue , , Operating expenses , , EBITDA (14.9) Depreciation (3.6) EBIT (32.1) (9.7) Other income 7.5 (8.3) (5.7) (18.1) (32.9) PBT Income tax (36.6) 8.0 (67.5) (17.6) PAT Share of associates' net profit Adj. PAT EPS (`) EBITDA margin (%) bp 16.1 (362)p (31)bp EBIT margin (%) bp 9.5 (362)bp (90)bp PAT margin (%) bp bp bp Modest revenue growth but margins decline NIIT reported its 4QFY2011 numbers, which were largely in line with our expectations on the revenue front. Consolidated revenue came in at `323.8cr (vs. our expectation of `327.2cr), up 9.8% yoy. Revenue from the individual learning solution (ILS-IT) and corporate learning solutions (CLS) businesses grew by 6.7% and 9.5% yoy, respectively. The school learning solutions (SLS) business posted whopping 16.5% yoy growth in revenue, which led to a 70bp yoy increase in its share in overall revenue to 11.6%. Exhibit 2: Revenue growth (Segment wise, yoy) (%) (5) (10) (15) (20) (25) (30) (1.9) (5.9) JFM09 JFM10 JFM11 (27.4) ILS SLS CLS Consolidated 9.8 May 11,

3 Exhibit 3: Revenue mix (Segment wise) 120 (%) JFM09 JFM10 JFM11 ILS SLS CLS New business Exhibit 4: Revenue performance (Segment wise) (` cr) JFM 11 JFM 10 OND 10 % chg (yoy) % chg (qoq) ILS SLS CLS New business (3.3) ILS: For 4QFY2011, revenue of the ILS-IT business grew by 6.7% yoy to `122.1cr (vs. our expectation of `125.8cr) with global enrollments growing by 12.2% yoy to 1,26,882; career enrollments increasing by 19% yoy and edgeineers growing by 33% yoy. Indian enrollments grew by 15% yoy. Also, placements continued to be robust, especially for the IT and banking sectors, posting combined growth of 43% yoy. The pending order book of this segment currently stands at `110.6cr, with 66% of it being executable in the next 12 months. EBITDA margin of the segment declined by 205bp yoy to 22.6% during the quarter. For FY2011, overall enrollments grew by 6% yoy. The business is witnessing continued traction from 99 Days Diploma course, which grew by 66% yoy in FY2011, signaling strong preference for short-term, job-oriented programmes. Placements in this segment increased by 31% yoy in FY2011. May 11,

4 Exhibit 5: ILS - Enrolment growth 180, , , Nos. 120, , (%) 80, , OND09 JFM10 AMJ10 JAS 10 OND 10 JFM 11 Enrollment yoy growth (%) 0 SLS: Revenue of the SLS business grew by whopping 16.5% yoy to `37.4 (vs. our expectation of `38.5cr). During the quarter, the company added 196 private schools with an order intake of `35.2cr from them. The pending order book of this segment stands at `440.2cr, with 30% being executable in the next 12 months. NIIT added 581 private schools in FY2011, up 76% yoy, and is focusing only on adding private schools due to delays in disbursements and execution in government schools. For 4QFY2011, EBITDA margin of the business declined ferociously by 1,557bp yoy to 7.5% due to reorganisation going on in this segment as well as the company gearing up for strategies adopted earlier. Management has indicated that margins of this business will witness an uptick in the coming quarters. Exhibit 6: Trend in private school addition in the SLS segment Nos OND09 JFM10 AMJ10 JAS 10 OND 10 JFM 11 Private schools May 11,

5 CLS: Revenue of the CLS business grew by 9.5% yoy to `152.6cr (vs. our expectation of `150.4cr) on the back of volume growth of 12.0% yoy, driven by growth in managed training services and online learning products. Order intake for the quarter stood at US$39.9mn, with the pending order book standing at US$98.2mn, of which 59% is executable over the next 12 months. Also, the company signed two multimillion dollar deals for managed training services in this segment in this quarter, taking the total engagements to six contracts. For FY2011, CLS business volume growth stood at 13% yoy, driven by strong growth in managed training services (38% yoy) and learning products (18% yoy). EBITDA margin of this segment also declined by 226bp yoy to 7.9% due to transition costs incurred because of undertaking two managed services contact and due to adverse exchange rate impact. Exhibit 7: Volume growth trend in CLS (%) 0 (0.5) JAS09 OND09 JFM10 AMJ10 JAS 10 OND 10 JFM 11 (10) (16.8) (4.0) (20) Volume growth (yoy) New business: Revenue of the new business grew by 27.2% yoy to `11.7cr (vs. our expectation of `12.4cr). FMT enrollments grew by 177% yoy, signaling strong hiring in the banking sector. Order intake for the quarter in this business stood at `11.6cr, with the pending order book standing at `107cr. Few segments within new business, including the banking course (IFBI) and management education, are doing well. However, overall, the segment is still at an EBITDA negative level and is expected to breakeven by 2HFY2012. Margins decline: Blended EBITDA margins declined by 362bp yoy to 12.5% (vs. our expectation of 16.2%) due to margin decline in all its businesses as well as business development expenses as the company expanded its sales force from 750 in FY2010 to 873 in FY2011. Net profit came in higher at `37.7cr (vs. our expectation of `26.7cr) because of higher other income of `7.5cr in this quarter (as against loss of `5.7cr in 4QFY2010) and lower tax outgo at 9.8% vs. 35.9% in 4QFY2010. Other income came in higher due to divestment of a non-operative asset, which added `21.5cr to the company s other income. May 11,

6 Exhibit 8: EBITDA margin (Segment wise) (%) 0 (10) JFM09 JFM10 JFM11 (20) (30) (23.9) (17.1) ILS SLS CLS New business Consolidated Outlook and valuation The ILS and CLS businesses are emerging to be the company s growth drivers. With strong recruitment plans announced by Indian IT majors, including Infosys and TCS with initial gross hiring targets of 45,000 and 60,000 in FY2012, respectively, we expect enrollment growth for ILS-IT to be stronger in FY2012. We expect ILS to return to its strong growth momentum of 14% yoy in FY2012, with strengthening of the hiring environment by the Indian IT players resulting in return in demand for vocational courses. CLS, which was heavily impacted by the downturn, has rebounded with respect to growth and has managed to bag strong order book. Demand for discretionary services, including training outsourcing, learning products and managed training services, is gaining traction. Also demand for new business courses such as IFBI, Imperia and Uniqua is expected to strengthen with the hiring environment turning positive in the management, commercial banking and BPO space. In the SLS segment, the company is witnessing strong traction from non-gsa schools and added 581 schools in FY2011, up 76% yoy. The total pending order book for CLS, SLS and new business grew by 20% yoy to US$225mn, of which 53% is executable over the next 12 months. Hence, we expect the company to post a revenue CAGR of 11.3% over FY E, whereas EBITDA growth is expected to outpace the same, reporting a 15.8% CAGR due to improving business mix in CLS and new business expected to near the breakeven in FY2013. The company is strategically moving towards turning asset-light by targeting more annuity-based revenue. Management aims to do so by being selective in government SLS contracts, which are highly capital-intensive and have long debtor cycles (thus impacting returns), targeting more private schools in the SLS business. Also, annuity contracts bagged in CLS related to learning products and MTS is expected to accelerate revenue growth and improve margins. With realignment of focus, the company expects to improve its profitability, reduce debtor cycle and repay debt by `80cr 90cr in FY2012 itself. May 11,

7 Exhibit 9: Segmental expectations (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E ILS Revenue yoy growth (%) EBITDA EBITDA margin (%) SLS Revenue yoy growth (%) (26.0) EBITDA EBITDA margin (%) CLS Revenue yoy growth (%) 5.0 (6.3) EBITDA EBITDA margin (%) New business Revenue yoy growth (%) (11.4) EBITDA (7.5) (15.2) (10.9) (6.2) (1.9) EBITDA margin (%) (22.5) (51.4) (22.5) (9.4) (2.4) Consolidated Revenue 1, , , , ,545.2 yoy growth (%) EBITDA EBITDA margin (%) Exhibit 10: Change in estimates FY2012E FY2013E Parameter Earlier Revised Variation Earlier Revised Variation (` cr) estimates estimates (%) estimates estimates (%) Net revenue 1,400 1, ,559 1,545 (0.9) EBITDA (11.1) (10.9) Other income (24) (25) 2.5 (16) (14) (17.6) PBT (26.5) (18.8) Tax (29.1) (17.7) PAT (14.8) (12.3) May 11,

8 Exhibit 11: One-year forward EV/EBITDA 3,500 3,000 2,500 2,000 1,500 1, Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 (` cr) Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 EV Also, the company s subsidiary, NIIT Technologies is witnessing a strong growth momentum. At the CMP, the stock is trading at EV/EBITDA of 4.3x FY2013E EBITDA, but the stake in NIIT Technologies provides for a strong upside. Hence, we have valued the company on an SOTP basis, arriving at a target EV/EBITDA of 4.3x on FY2013E consolidated EBITDA of `213.4cr, and added the company s stake in NIIT Technologies (with holding discount of 20%), arriving at a target price of `68. We recommend Buy on the stock. Exhibit 12: Valuation metric for NIIT (Based on FY2013E) FY2013E (` cr) EBITDA Target EV/EBITDA (X) Target EV ILS SLS CLS New business (1.9) 2.5 (4.8) Target EV for NIIT Debt Cash & Cash equivalent Target Mcap for NIIT Value per share for NIIT (`) 54.8 Value due to NIIT Technologies Current price (`) Holding discount 20.0 No of shares held by NIIT (cr) 1.5 Value of held equity Value per share of held equity 13.5 Target price for NIIT Ltd 68.4 May 11,

9 Exhibit 13: Recommendation summary Company Reco CMP Tgt. Price Upside FY2013E FY2013E FY E FY2012E FY2013E (`) (`) (%) P/BV (x) P/E (x) EPS CAGR RoCE (%) RoE (%) 3iInfotech Accumulate Educomp Buy Everonn Accumulate HCL Tech Buy Infosys Buy 2,904 3, Infotech Enterprises Neutral KPIT Cummins Buy Mphasis Buy NIIT Buy TCS Buy 1,138 1, Tech Mahindra Buy (0.3) Wipro Accumulate (19.5) May 11,

10 Profit and loss statement (consolidated) Y/E March (` cr) FY2009 FY2010 FY2011 FY2012E FY2013E Net sales 1,149 1,199 1,248 1,401 1,545 Operating expenses 1,030 1,043 1,089 1,216 1,332 EBITDA % of net sales Dep. and amortization % of net sales EBIT % of net sales Other income (5) (33) (18) (25) (14) Profit before tax Provision for tax % of PBT PAT Share in profit of associates Profit after minority interest EPS (`) May 11,

11 Balance sheet (consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013E Capital employed Equity capital ESOP outstanding Reserves and surplus Currency translation reserve Net worth Secured loans Unsecured loans Total debt Minority interest Total capital employed Capital deployed Gross block Accumulated depreciation Net block Capital WIP Total fixed assets Investments Inventories Sundry debtors Cash at bank Loans and advances Other current assets Sundry creditors Other liabilities Provisions Net deferred tax assets Miscellaneous expense Total capital deployed May 11,

12 Cash flow statement (consolidated) Y/E March (` cr) FY2009 FY2010 FY2011E FY2012E FY2013E Pre tax profit from oper Depreciation Pre tax cash from oper Other inc./prior period ad Net cash from operations Tax Share of profit from ass Cash profits (Inc)/dec in sundry debtors (86) (50) (50) (5) (15) (Inc)/dec in current assets (14) (26) (31) 31 - (Inc)/dec in inventories 3 (3) 1 (1) (2) (Inc)/dec in loans and adv. (20) (4) (6) (19) (18) Inc/(dec) in sundry creditors 56 (31) Inc/(dec) in other current liab. 40 (5) (16) Net trade working capital (20) (118) (89) Cash flow from oper. actv (Inc)/dec in fixed assets (240) (38) (30) (63) (57) (Inc)/dec in investments (17) (21) (Inc)/dec in deferred tax asset (10) Cash flow from investing actv. (267) (55) (3) (63) (45) Inc/(dec) in debt (40) (80) (84) Inc/(dec) in equity/premium 31 (16) Inc/(dec) in minority interest (1) 2 (1) - - Dividends Cash flow from fin. activities (70) (115) (128) Cash generated/(utilised) (5) (13) Cash at start of the year Cash at end of the year May 11,

13 Key ratios Y/E March FY2009 FY2010 FY2011E FY2012E FY2013E Valuation ratio (x) P/E (on FDEPS) P/CEPS P/BVPS Dividend yield (%) EV/Sales EV/EBITDA EV/Total assets Per share data (`) EPS Cash EPS Dividend Book value Dupont analysis Tax retention ratio (PAT/PBT) Cost of debt (PBT/EBIT) EBIT margin (EBIT/sales) Asset turnover ratio (sales/assets) Leverage ratio (assets/equity) Operating ROE Return ratios (%) RoCE (pre-tax) Angel RoIC RoE Turnover ratios(x) Asset turnover (fixed assets) Receivables days Payable days May 11,

14 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement NIIT Ltd 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below `lakh for Angel, its Group companies and Directors Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%) Reduce (-5% to 15%) Sell (< -15%) May 11,