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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.
Underlying
Coforge

NIIT Technologies Ltd is an India-based Information technology (IT) solutions company. The Company is engaged in application development and maintenance, managed services, cloud computing and business process outsourcing to organizations in several sectors such as banking and financial services, insurance, travel and transportation and logistics, manufacturing and distribution and government. The Company is combined with capabilities in data and analytics, automation, cloud and digital, is enabling to drive business transformation. The Company offers Tron intelligent automation, digital process transformation, application services, business process services, cyber security, among others. It serves industries such as travel and transportation, insurance, banking and financial services and enterprise services.

Provider
Motilal Oswal
Motilal Oswal

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