Thursday, January 21, 2016

Buy NIIT Tech CMP: Rs.442;Target: Rs.550

NIIT Technologies is a global IT solutions organisation with over 9,000 professionals addressing the requirements of clients across the US, Europe, West Asia, Asia and Australia. 

The company’s portfolio of service offerings encompasses Application Development and Maintenance, Infrastructure Managed Services, Digital Services and BPM.

NIIT Tech reported mixed set of numbers for Q3FY16 with lower revenue growth but inline profitability supported by strong margin expansion. Highlight of its Q3FY16 performance was its continued margin expansion even in a soft quarter. 

We believe that that there is still room for margin improvement if onsite/ offshore mix reverts back to its peak levels of 55 per cent/ 45 per cent. During 9MFY16, onsite/offshore mix has improved to 59 per cent/41 per cent to 38 per cent from 62 per cent. However, lumpy growth in its top 10 clients and decline in managed services is limiting growth. 

Top 10 accounts which showed good growth in Q3, needs to continue this momentum and break above the $45-46 million quarterly run-rate to achieve industry leading growth rate. Continued margin improvement and recent deal wins is providing comport to earnings growth.

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