NIIT Technologies Ltd. 15 th February, 2016 BUY

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1 Company Report BROKING DEPOSITORY DISTRIBUTION FINANCIAL ADVISORY NIIT Technologies Ltd. 15 th February, 2016 BUY CMP Target Price Rs Rs BSE Code Market Cap (Rs Cr.) Week High/Low / Industry Face Value Shares O/S Information Technology Rs Cr. EPS(TTM) Book Value P/E P/B 1.94 Shareholding Pattern Research Analyst: Vineeta Mahnot NIIT Technologies is a leading global IT solutions organization, servicing customers in Americas, Europe, Middle East, Asia and Australia. It offers services in Application Development and Maintenance, Infrastructure Management, IP Asset or Platform Solutions, Business Process Management, and Digital Services to organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. The company has registered decent results for the quarter ending December The consolidated revenues grew by 14% to Rs crores vs. Rs cr. in the year ago quarter. Operating profit grew by 43.27% at Rs crores as against Rs crores in the corresponding quarter last year. The adjusted net profit surged sharply at Rs crore as against Rs crore; registering growth of 56% on a y-o-y basis. Margins continued to expand during the quarter and this was mainly on account of reduced SG&A. Amongst industry segments, BFSI grew 2.1% contributing to 38% of total revenues. Travel and Transportation revenues declined 3.7% resulting to a share of 36% and Manufacturing/Distribution contributed 9%. Revenues from Government contributed 3% of the revenue mix. Head count stood at 9,517 at the end of the quarter with utilization of direct resources at 78.7%.Business in the US contributes to 46% of overall revenues during the quarter. EMEA to 34% while the revenue share from APAC contributed 10% to total revenues and revenues from India contributed to 10% of the mix. Capex spend during the quarter stood at Rs.29.5 crores. Valuation With the strong order intake, good pipeline, strong traction in the Digital services business and ramp ups in Q4 may lead to FY17 to be stronger than FY16. We believe the company is trading at an attractive valuation at 10.85x and 9.63x of FY16EPS of Rs and FY17EPS of Rs We initiate a BUY on the stock with a target price of Rs.645 (appreciation of about 29%) with the medium to long term investment horizon. For Private Circulation Only 1 Hem Research

2 Business overview NIIT Technologies is a leading global IT solutions organization, servicing customers in Americas, Europe, Middle East, Asia and Australia. It offers services in Application Development and Maintenance, Infrastructure Management, IP Asset or Platform Solutions, Business Process Management, and Digital Services to organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. Service Offerings- Application Development and Management: NIIT Technologies provides Application Development Services including custom software development, business intelligence and migration and modernisation to globally dispersed customers. The company helps clients manage their mission and time-critical applications by providing cost-effective application management services over a wide range of technologies. Infrastructure Management Services: NIIT Technologies Infrastructure Management Services simplify IT operational and investment challenges by delivering IT infrastructure and applications as completely administered services. The company provides a comprehensive portfolio of end to end Infrastructure Management Services ordained around the philosophy/vision of continuous delivery that map all aspects of IT infrastructure advisory, design, implementation and E2E business driven IT SLA agreements catering to the needs of both industrial and digital world. Business Process Management (BPM): NIIT Technologies BPM business offers outsourcing solutions that combine domain expertise, process excellence and cutting-edge technologies. It enables clients to effectively and efficiently manage back office, middle office and front office operations. Systems Integration and Package Implementation: These solutions mainly revolve around SAP and other ERP platforms. NIIT Technologies subsidiary, NIIT GIS Ltd. also provides endto-end GIS-based solutions to customers. NIIT GIS provides software products, training, technical support, data conversion and application development to varied industry sectors. They also include complete geo-spatial image processing and consulting solutions. Digital Services: The Company has clearly articulated its offerings in this area which has four elements: Digital Experience, Cloud, Analytics and Digital integration. For Private Circulation Only 2 Hem Research

3 Strong order inflow There has been good order intake by the company over the recent quarters as a result of realignment of the company s sales and marketing effort. NIIT Tech has added 4 significant new customers during the December quarter, including new large engagement with Ofcom. The value of the contract is GBP 23 million over a six year period which includes an initial term of 4 years and extensions. This Ofcom deal contributes to margin improvement for the business. In all the company added four new logos this quarter- two in EMEA and two in APAC. Three new clients are from the Travel and Transportation space and one from the others. There has been order intake to the tune of $123 million during the quarter taking the order book to $301 million executable over the next twelve months. The order intake has been geographically spread with $50 million from USA, $55 million from EMEA and the remaining $18 million from rest of the markets. In this quarter the company completed some key flagship digital experience projects in multiple clients in the travel vertical. The Company secured 5 new Digital engagements in areas like Predictive Demand modelling, Omni-channel commerce, Next Best Action and Migration to Amazon Web Services. The Company is investing in developing strong capabilities across Digital Experience, Analytics and Digital Integration. For Private Circulation Only 3 Hem Research

4 Good growth potential next year Company expects revenue growth to recover from the first quarter of financial year 2017 in line with industry average after witnessing Q3 as a soft quarter. Even Q4 may remain soft on account of some programs in the Travel space which has gone live. However for FY16, the management expects to grow at the lower end of the industry average. On the margin front, the company expects to improve from the fourth quarter of FY16 driven by better business mix and strong order intake. The Digital business and GIS business proportion is expected to improve. The good traction in the Digital services will help the company in its growth trajectory for FY17. The company plans to focus on main verticals like BFSI, Travel and Media which constitutes the bulk of the order pipeline and will drive the mainstream of growth going forward. The company is seeing good traction especially in the Insurance vertical and in the US in Banking. The company sees good order pipeline going ahead. Though there may be some softness in the order book on account of changing nature of business as contribution of digital business is increasing to 15% which generally has short executable period of 2-3 months. Further, under digital business, the company expanded the capability of its advanced analytics platform, Digital Foresight to deliver business outcomes aimed at increasing sales, reducing customer churn and combating fraud. For Private Circulation Only 4 Hem Research

5 Consolidated Profit & Loss Account Rs. Crore Particulars FY13 FY14 FY15 FY16E FY17E Net sales Growth 14.03% 2.93% 14.00% 12.80% Expenditure EBITDA Growth 6.63% -5.20% 42.19% 14.73% EBITDA margin 16.29% 15.23% 14.03% 17.50% 17.80% Other income Depreciation & Amortisation EBIT EBIT margin 14.61% 13.86% 10.90% 14.49% 14.82% Interest PBT Tax PAT Share of Associates Minority Interest Adjusted PAT Growth 8.12 (15.84) Net Profit margins Exceptional item Reported PAT Equity Capital , , Res. & Surplus , , Equity Shares Adjusted EPS For Private Circulation Only 5 Hem Research

6 Balance Sheet Rs. Crore Particulars FY13 FY14 FY15 FY16E FY17E Equity Share Capital Reserves & Surplus , , Shareholders funds Borrowings Minority Interest Sources of funds Gross block Accumulated Depreciation Net block Capital WIP Investments Deferred tax asset Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances Total current assets Current liabilities and provisions Net current assets Uses of funds 1, , , , , Ratios Particulars FY13 FY14 FY15 FY16E FY17E Return on Equity Return on Capital employed Debt/Equity Asset turnover Current Ratio Book value per share Interest coverage For Private Circulation Only 6 Hem Research

7 Consolidated Quarterly Financial Highlights Rs. Crore Particulars Q3FY16 Q3FY15 Q2FY16 YoY% QoQ% Revenues Expenditures (0.59) Operating Profit Adjusted Net Profit Exceptional item Reported PAT OPM% bps 59bps NPM % bps 103bps Adjusted EPS* *Adjusted for current number of equity shares Past Price movement of the stock NIIT TECHNOLOGIES ( , , , , ) For Private Circulation Only 7 Hem Research

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