“For 4QFY2011, NIIT’s results were in line with our expectations on the revenue front but were disappointing on the operational front. Revenue growth was driven by all businesses, but operational performance was dented due to the SLS business, which posted a 1,557bp yoy dip in EBITDA margin. Consolidated revenue came in at Rs324cr, up 9.8% yoy. Revenue from ILS-IT, SLS and CLS businesses increased by 6.7%, 16.5% and 9.5% yoy to Rs122cr, Rs37cr and Rs153cr, respectively. Revenue from new business grew by 27.2% yoy to Rs11.7cr. Blended EBITDA margin declined by 362bp yoy to 12.5% due to margin decline in all its business segments. EBITDA margin decline in the SLS segment was extensive at 1,557bp yoy to 7.5%. EBITDA margin of the ILS and CLS business segments declined by 205bp and 226bp yoy to 22.6% and 7.9%, respectively.”
“The hiring environment in the Indian IT sector is strengthening, as indicated by Indian IT players such as Infosys and TCS aiming to collectively hire ~1,05,000 people in FY2012. Thus, we expect ILS to record strong growth of 14% yoy in FY2012, with strengthening of the hiring environment expected to result in return in demand for vocational courses. With developed economies such as the US returning to growth, we expect the discretionary spend related to training outsourcing, learning products and managed training services to turn robust and expect 7% yoy growth in the CLS business. At the CMP, the stock is trading at EV/EBITDA of 4.3x FY2013E EBITDA, but the stake in NIIT Technologies provides for strong upside. Hence, we recommend Buy on the stock with a target price of Rs 68,” says Angel Broking research report.
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