EUR 120.00 For Business Accounts Only

MOSL: NIIT TECH (Neutral)- Baring to acquire promoter stake in NITEC; NITEC acquires Wishworks

NIIT Tech: Baring to acquire promoter stake in NITEC; NITEC acquires Wishworks, divests from GIS business

(NITEC IN, Mkt Cap USD1.2b, CMP INR1301, TP INR1400, 8% Upside, Neutral)

 

Baring Private Equity buys NIIT Tech’s promoter stake at INR1,394/share

• Baring Private Equity Asia (BPEA) has signed a definitive agreement with NIIT Technologies (NITEC) for sale of approximately 18.85m shares of the latter (approximately 30% shareholding on a fully diluted basis in NIIT Technologies).
• BPEA will buy ~30% of the promoter stake in NIIT Tech for INR26.3b, at INR1,394/share. This is a 3.3% upside to the CMP (INR1,301).
• The selling entities are promoter entities of NITEC: (1) NIIT Ltd (23.1%), (2) the Thadani Family Trust (3.53%), and (3) the Pawar Family Trust (3.53%). 

Is a merger of NIIT-Hexaware on the cards?

• Based on our FY19/20/21 earnings estimates of INR66.2/74.5/89.9 for NITEC, the deal price implies a P/E multiple of 21.1x/18.7x/15.5x. In fundamental terms, we believe there is limited room for error at these valuations, which had been driving our Neutral stance on the stock.
• Baring already holds 62.66% stake in Hexaware. Further, there has been accompanying media speculation of an eventual likely merger between the two companies – NITEC and Hexaware. If it fructifies, it would result in a USD1.2b IT services company with 40%+ revenue from BFSI and ~17% revenue from Transportation.
• The management of NITEC ruled out the same in the foreseeable future, though there remain merits in favor of arguments for a larger, more efficient entity.