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.