MOSL: NIIT TECHNOLOGIES (Neutral)-Strong exit and equally robust outlook-Upgrading estimates by 5-8%

NIIT TECHNOLOGIES: Strong exit and equally robust outlook; Upgrading estimates by 5-8%

(NITEC IN, Mkt Cap USD1.0b, CMP INR1028, TP INR1000, 3% Downside, Neutral)

•  Ends the year on a strong note…: 4Q CC revenue growth was 4.3% v/s our estimate of 2.5%. EBITDA margin at 18% (+90bp QoQ) was in line. 4QFY18 revenue grew 17.3% YoY (est. of +14.1%) to USD122m, EBITDA rose 12.5% YoY to INR1,418m and PAT increased 16.5% YoY (est. of +10%) to INR861m. For FY18, NITEC's INR revenue grew 7.8% YoY, while CC revenue rose 9.7%. EBITDA grew by 9.4% YoY to INR5.0b and PAT by 25% YoY to INR2.8b. Adjusted for one-time exceptional loss in FY17, PAT growth was 11% YoY.
• …and guides for a robust FY19 led by better client budgets: NITEC expects FY19 organic CC revenue to grow at least in double digits. Also, margin is guided to expand further from 16.8% in FY18. NITEC cited that the budget outlays of its top-20 clients are much better than previous years, and the outlook for robust growth is premised on a broad-based traction in spending. That is also reflected in its expectation of more large deals than the seven signed this quarter
• Valuation view: We upgrade FY19/20E revenue by 1.4/1.8%. Also, given the commentary of margin expansion, our FY19/20 earnings estimates are up by 5%/8%. We now expect a CAGR (FY18-20) of 12% in USD revenue and 20% in earnings. Our TP of INR1,000 discounts forward earnings by 15x (3% downside). NITEC is entering into double-digit organic growth trajectory after a while, and we would ascribe a higher multiple as confidence grows on sustenance of such traction. Maintain Neutral.