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MOSL: NIIT TECHNOLOGIES (Neutral)-Broad-based growth, intact deal momentum lays foundation for FY20

NIIT Technologies: Broad-based growth, intact deal momentum lays foundation for FY20

(NITEC IN, Mkt Cap USD1.1b, CMP INR1268, TP INR1400, 10% Upside, Neutral)

• 4Q revenues marginally weak due to contract deferral: FY19 revenues grew 17.6% YoY in CC, a significant improvement over FY18’s 9.7%. EBITDA grew 28.7% YoY with OPM up 80bp to 17.6%; PAT rose 44% YoY to INR4,044m. 4QFY19 CC revenue grew 1.3% QoQ (17.3% YoY), below our estimate of 3% QoQ, led by deferral in a contract in the Insurance segment. EBITDA margin excluding one-offs was 18.1% (-10bp QoQ), in line with our est. of 18.2%. PAT was INR1143m, +14% QoQ and 33% YoY, a 4% beat to our est. due to lower tax rate (21.2% v/s est. of 23.5%)
• Impressive revenue recovery underlined by broad-based performance: NITEC’s impressive FY19 performance was underlined by 17-35% YoY growth across verticals, led by Insurance. In terms of geographies too, the focused ones -- the US (22% YoY) and EMEA (32% YoY), saw growth across all industries. Growth has been accompanied with operational rigor, which saw SGA decline 180bp YoY to 17.3%.
• Deal wins, order book lend visibility of sustained momentum: NITEC’s order intake in FY19 was USD646m, up 27% YoY. Its executable order book over the next 12 months stands at USD390m, +15% YoY. This lends visibility of continued revenue momentum in the foreseeable future. Although performance in Insurance dropped this quarter, it was not on account of any macro concerns; and the deferred contract is close to getting signed. Even the Capital Market segment for NITEC is expected to generate continued traction amidst varied commentaries on outlook across peers (buy-side segment of capital markets dominates NITEC’s BFS exposure).