MOSL: NIIT TECHNOLOGIES (Neutral)-In-line performance-navigating client-specific challenges

​NIIT Technologies: In-line performance; navigating client-specific challenges

(NITEC IN, Mkt Cap USD0.5b, CMP INR546, TP INR540, 1% Downside, Neutral)

• Largely in-line performance: NITEC’s 1QFY18 CC revenue growth of 1.4% QoQ (excluding one-time revenue gains in 4Q) was largely in line with our estimate of +1.3%. RuleTek acquisition contributed ~0.5% QoQ CC (one-month impact), adjusted for which, the performance was marginally below our estimate. EBITDA margin shrunk 200bp QoQ to 15.6%, in line with our estimate of 15.8%, but with better quality (higher GPM offset by higher SGA). Net income for the quarter increased 64% YoY to INR513m, below our estimate of INR587m, due to tax on dividend income from foreign subsidiaries
• BFSI/manufacturing drove growth, order intake steady: BFSI grew 1.7% QoQ CC, while Manufacturing & Others grew 4.3% QoQ CC. Transportation, however, was a drag (-0.8% QoQ CC). Total order intake during the quarter was USD110m, in the narrow band of recent quarters. Digital revenues constitute ~21% of the business.
• Expects performance to continue picking up: Despite ~USD2m impact from client ramp-down in 2Q, NITEC expects its revenue growth to accelerate, with the push coming from Digital segments and improvement in NITL. Even EBITDA margin should start inching from 15.6% and exit the year at ~18%, led by business mix and improvement in GIS for the remainder of the year.