1. business and industrial

Result Update
January 18, 2015
NIIT Ltd. (NIIT)
Previous
Q3FY15 below estimate: Downgraded to SELL from BUY with
TP Rs.37 from Rs.55…
Rating : SELL
Rating : BUY
Target : Rs.37
Target : Rs.55
Rs.mn
Q3FY15 Q3FY15 Q3FY14 Q‐o‐Q % Y‐o‐Y % INSPL est Variance(%)
Revenue 2,482 2,604 2,336 -4.7% 6.3%
2,348
5.7%
EBIDTA
57
181
143 -68.5% -60.1%
169
-66.3%
PAT
19
103
12 -82.0% 54.2%
94
-80.3%
Current
CMP : Rs.46
Source: Company Filings; IndiaNivesh Research
STOCK INFO
BSE
NSE
Bloomberg
Reuters
Sector
Equity Capital (Rs mn)
Face Value (Rs)
Mkt Cap (Rs mn)
52w H/L (Rs)
Avg Daily Vol (BSE+NSE)
500304
NIIT LTD
NIIT IN
NIIT.BO
Computer Education
330
2
7,978
66/23
1,664,368
SHAREHOLDING PATTERN
Q3FY15 Result Highlights
■
%
(as on Dec. 2014)
Institutions
Others, Incl Public
Promoters
23.1
42.7
34.2
Source: BSE
STOCK PERFORMANCE (%) 1m
NIIT
-6.6
SENSEX
2.8
3m
-7.3
7.0
12m
78.0
31.9
Source: IndiaNivesh Research
NIIT v/s SENSEX
14/Jan/15
31/Dec/14
17/Dec/14
03/Dec/14
22/Oct/14
19/Nov/14
08/Oct/14
05/Nov/14
24/Sep/14
10/Sep/14
30/Jul/14
27/Aug/14
16/Jul/14
13/Aug/14
02/Jul/14
18/Jun/14
04/Jun/14
23/Apr/14
21/May/14
09/Apr/14
07/May/14
26/Mar/14
12/Mar/14
29/Jan/14
26/Feb/14
15/Jan/14
12/Feb/14
320
300
280
260
240
220
200
180
160
140
120
100
80
NIIT
Comments
Above Est
Below Est
Below Est
NIIT Ltd Q3FY15, performance was mixed bag. Revenue went up 6.3% Y/Y to
Rs.2,482 mn (v/s INSPL est. Rs.2,310 mn) led by 28.4%/680.0% Y/Y increase in
CLS and Skill segment, partially offset by 16.1%/11.5% Y/Y decline in ILS and
SLS segment. EBITDA went down 60.1% Y/Y to Rs.57 mn (v/s INSP est. Rs.169
mn) led by 760%/60% Y/Y decline in ILS and SLS segment EBITDA, respectively,
and continued loss in SKIL segment EBITDA. This was partially offset by
18.8% Y/Y growth in CLS segment EBITDA. The negative surprise on EBITDA
front was due to lesser operating efficiency on ILS and SLS front and
investment in transformation initiatives. Depreciation, charges during the
quarter went down 17.4% Y/Y to Rs. 152 mn due to decline in government
school business. The management expect further decline in depreciation
expenditure in FY16 on back of closure of few more government school
contracts. During the quarter, NIIT reported other income (Inc. Interest &
forex) of Rs.4 mn (v/s negative 46 mn in Q3FY14). Tax expenditure during the
quarter stood at Rs.4 mn (v/s Rs.14 mn in Q3FY14). Excluding associates
profit, the company reported the net loss of Rs.-95mn (v/s -Rs.101 mn in
Q3FY14). Associate net profit stood at Rs.114 mn (v/s 113 mn in Q3FY14).
The reported net profit was Rs.19 mn way below INSPL estimate of Rs.94 mn.
The sudden dip in EBITDA margin performance indicates that the transition phase
for NIIT Ltd is still not over. One of the largest revenue-contributing segments ‘ILS &
SLS’ still continue to bleed. Along with this the required uptake in Non-Gov School
business is getting delayed. Additionally, new skill development segment is likely to
report losses over near-to-medium-term. The only solace is higher revenue growth
and profitability in CLS segment. The uptake in discretionary IT budget could lead to
increase in IT-fresher hiring and likely to improve the operating efficiency of ILS
segment. However, the company’s dependence on IT heavy business model is taking
more than expected time to show turnaround.
Sensex
Source: Capitaline, IndiaNivesh Research
Key Conference Call Takeaways
ILS Segment: underperformance continues...
■
During the quarter, Non-IT segment contribute 33% to net ILS revenues but
demonstrated 1.2% Y/Y de-growth in revenue. The total ILS enrolments degrew by 13.1% Y/Y to 56,126 students. Overall ILS revenue went down 16.1%
Y/Y to Rs.769 mn. During the quarter, ILS segment contributed 31% to the
overall company level Revenue but reported loss at EBITDA level. ILS segment
reported EBITDA loss of Rs.99 mn [v/s profit of Rs.15 mn in Q3FY14] due to
lower revenue base.
■
The negatives of ILS performance were as follows: (1) double-digit revenue
decline along with EBITDA level loss, (2) de-growth (1.2% Y/Y) in non-IT revenue,
and (3) double-digit decline in ILS enrolment.
■
In conference call, management sounded positive on IT hiring environment
going ahead on back of peak utilization level. Additionally, the launch of
Daljeet S. Kohli
Head of Research
Tel: +91 22 66188826
[email protected]
Amar Mourya
Research Analyst
Tel: +91 22 66188836
[email protected]
IndiaNivesh Research
IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007. Tel: (022) 66188800
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.
Result Update (contd...)
various new courses on cloud platform should lead to higher revenue and
margin going ahead. The contribution from cloud campus could reach nearly
75% of ILS revenue in long run. Further, expansion of NIIT one world program
in large number of centres remains a key margin lever. The introduction of
New-IT courses [cloud/mobility/ collaboration/ enterprise] could foster
overall growth.
CLS Segment: Consistent outperformer...
■
During the quarter, CLS segment reported fresh orders intake of $24 mn (v/s
$21 mn in Q3FY14). As a result, despite timely execution its pending order
book stood at $65 mn v/s $60mn in Q3FY14. Further, executable order book
in next 12M grew by 13.4% Y/Y to $47 mn (v/s $42 mn in Q3FY14), indicates
robust FY15 revenue outlook. Managed training solutions (MTS) segment
revenue went up 36.3% Y/Y and contributed 87% to CLS revenue.
■
The management expect FY15 revenue growth in range of 20-25% and expect
CLS contribution to increase 55% (v/s 42% in FY14) of the overall revenue.
CLS segment revenue and EBITDA contributed 55% and 227% to overall revenue
and EBITDA, respectively for the quarter. During the quarter, company added
4 new clients in MTS segment leading to total 27 clients.
SLS Segment: de-growth in NGSA segment…
■
School learning solutions (SLS) segment revenue de-grew 11.5% Y/Y to Rs.121
mn. During the quarter, the non-government school (NGSA) revenue went
down 18.8% Y/Y to Rs.121 mn. Additionally, GSA segment de-grew by 6.3% Y/
Y (to Rs.193 mn). After completion of one GSA contract, the total Gov-School
(GSA) reduced by 1,870 to 9,338 schools. In FY16, various other states Govschool (GSA) contracts are expect to be close. As a result, we expect further
decline in depreciation expenditure in FY16. The major Gov-school (GSA)
projects are due to close on FY16/FY17.
■
During the quarter, fresh order intake was Rs.130 mn leading to executable
12M order backlog of Rs.1,017 mn. As expected nGuru gained traction
amongst PVT schools, added 125 schools during the quarter. We believe this
could be a significant revenue contributor to SLS segment revenue going
ahead.
■
Private school addition during the quarter was 69 [v/s 95 in Q3FY14] leading
to Pvt-school base of 4,370 schools. During the quarter, SLS segment
contributed 13%/14% to overall revenue and EBITDA. The management expect
PVT school contribution to SLS segment could increase to 84% by FY16 [v/s
39% in Q3FY15] and expect EBITDA margin to reach at ~18% [v/s 2.5% in
Q3FY15] by FY16.
Valuations
At CMP of Rs.46, the stock is trading at 32.3x FY15E, 13.3x FY16E, and 12.1x FY17E
earnings estimate. We are extremely disappointed by the company’s performance
in ILS (Non –IT De-growth) and SLS (NGSA de-growth) segment. Only solace during
the quarter was CLS performance. The company’s dependence on IT heavy business
model and shift in IT companies’ business model from linear to non-liner is taking
more than expected time to show turnaround. In our view, the recent initiatives [(1)
increasing presence of Non-IT business in ILS segment, (2) reduction of capex
intensive government school business, and (3) high growth in MTS business] might
take more than expected time to deliver actual benefit, as there are too many
moving parts in the company. As a result, we reduce our target price to Rs.37 (10x
FY17E) from Rs.55 and downgrade our rating to SELL from BUY.
IndiaNivesh Research
NIIT Ltd | Result Update
January 18, 2015 | 2
Result Update (contd...)
Quarterly Performance
Consolidated Income Statement
(Rs. Mn)
Net Revenue:
ILS
SLS
CLS
SKIL
Revenue
COGS + SG&A:
ILS
SLS
CLS
SKIL
COGS
EBITDA:
ILS
SLS
CLS
SKIL
EBITDA
DepreciaƟon
Net Interest & Others
TAX
Standalone Net Profit
Associates Net Profit
Reported Net Profit
EPS
O/Shares
Q3FY15
Q2FY15
Q3FY14
Q-o-Q %
Y-o-Y %
769
314
1,360
39
2,482
1,004
318
1,248
34
2,604
917
355
1,059
5
2,336
-23.4
-1.3
9.0
14.7
-4.7
-16.1
-11.5
28.4
680.0
6.3
868
306
1,202
48
2,424
960
311
1,104
48
2,423
902
335
926
30
2,193
-9.6
NM
8.9
0.0
0.0
-3.8
NM
29.8
60.0
10.5
-99
8
158
-9
57
152
4
4
-95
114
19
0.1
165
44
7
144
-14
181
147
-39
-5
108
103
0.6
165
15
20
133
-25
143
184
-46
14
-101
113
12
0.1
165
-325.0
14.3
9.7
-35.7
-68.5
3.4
-111.3
NM
NM
5.1
NM
-82.0
0.0
-760.0
-60.0
18.8
-64.0
-60.1
-17.4
-109.6
NM
NM
0.4
54.2
54.2
0.0
-12.9
2.5
11.6
2.3
4.4
2.2
11.5
7.0
1.6
5.6
12.6
6.1
basis points (bps)
EBITDA Margin %
ILS
SLS
CLS
Total Margin %
PAT Margin %
Standalone PAT
Reported PAT
-1,726
35
8
-465
-1,451
-309
-94
-383
basis points (bps)
-3.8
0.7
-0.2
4.0
-4.3
0.5
NM
-321
NM
23
Source: Company Filings; IndiaNivesh Research
IndiaNivesh Research
NIIT Ltd | Result Update
January 18, 2015 | 3
Result Update (contd...)
Consolidated Financials
Income statement
Balance sheet
Y E March (Rs m)
Net sales
Sequentail Growth %
FY13
9,609
‐23.8
FY14
9,511
‐1.0
FY15e
10,023
5.4
FY16e
12,105
20.8
FY17e
13,920
15.0
Employee cost
SG&A
EBITDA
Growth %
EBITDA Margin %
7,162
1,923
524
‐64.7
5.5
7,312
1,590
609
16.2
6.4
7,881
1,596
546
‐10.3
5.4
9,255
2,002
847
55.0
7.0
10,644
2,302
974
15.1
7.0
863
‐339
‐3.5
778
‐169
‐1.8
644
‐98
‐1.0
605
242
2.0
696
278
2.0
Deprecaition
EBIT
EBIT Margin %
Interest & Other Income
PBT
Tax
Effective tax rate %
Extraordinary items
PAT
Growth%
PAT margin %
Income from Associate
Reported PAT
Growth%
341 107 96 121 121
‐680
‐276
‐195
120
157
‐433
93
16
36
47
63.7
‐33.7
‐8.1
30.0
30.0
0
‐247
‐139.7
‐2.6
0
‐369
49.5
‐3.9
0
‐210
‐43.0
‐2.1
1
84
‐140.1
0.7
2
110
30.6
0.8
509 536 598 470 500
262
167
387
554
610
‐76.2
‐36.5
132.6
43.1
10.0
Source:Company filings; IndiaNivesh Research
FY13
330
6,347
6,677
0
49
6,726
1102
391
1494
8,220
8,037
5,708
2,329
1,104
2,357
153
6,140
3,699
96
1,058
682
606
3,438
425
2,277
8,220
FY14
330
6,763
7,093
0
30
7,123
1102
391
1494
8,616
8,815
6,486
2,329
1,104
2,762
153
6,384
3,672
94
1,298
696
624
4,341
‐227
2,269
8,616
FY15e
330
7,112
7,442
0
30
7,472
1102
391
1494
8,966
9,459
7,130
2,329
1,104
3,078
153
6,762
3,619
105
1,686
710
642
4,590
‐129
2,302
8,965
FY16e
330
7,618
7,949
0
30
7,978
1102
391
1494
9,472
10,064
7,736
2,329
1,104
3,423
153
7,746
4,203
125
2,032
724
662
5,231
52
2,463
9,471
FY17e
330
8,228
8,559
0
30
8,588
1102
393
1496
10,084
10,761
8,432
2,329
1,104
3,795
153
8,533
4,833
180
2,100
738
682
5,829
0
2,704
10,084
Source:Company filings; IndiaNivesh Research
Flow
Cash
Y E March (Rs m)
FY13
FY14
FY15e
FY16e
FY17e
PBT
Depreciation
Interest Exp
Changes in Working Capital Cash Flow After Chang in working capital
Tax
Cash flow from operations
‐680
863
156
98
437
35
472
‐276
778
107
248
857
‐93
764
‐195
644
96
355
901
‐16
885
120
605
121
185
1,032
‐36
996
157
696
121
‐173
801
‐46
755
Net Capital expenditure Free Cash Flow
Other income
Investments
Cash flow from investments
705
‐234
186
0
‐520
778
‐14
536
‐404
‐647
644
241
439
‐316
‐522
605
391
470
‐345
‐480
696
59
500
‐372
‐568
Debt Raised/Paid
Dividend paid (incl tax)
Cash flow from Financing
301
‐306 ‐5
‐127
211
85
‐96
121
24
‐121
‐48 ‐169
‐121
0
‐121
Net change in cash
Cash at the beginning of the year
Cash at the end of the year
‐44
1,102
1,058
202
1,058
1,298
388
1,298
1,686
347
1,686
2,032
66
2,033
2,100
Ratios
Source:Company filings; IndiaNivesh Research
IndiaNivesh Research
Y E March (Rs m)
Share Capital
Reserves & Surplus
Net Worth
Currency Translation Reserves
Minority Interest
Total
Secured Loans
Others Total
Total Liabilities
Gross Block
Less Depreciation
Net Block
Others Investments
Defered tax assets
Current Assets
Sundry Debtors
Inventories
Cash & Bank Balance
Loans & advances
Other Current Assets
Current Liabilities
Provisions
Net Current Assets
Total assets
Y E March
FY13
FY14
FY15e
FY16e
FY17e
EPS (Rs)
Cash EPS (Rs)
DPS (Rs)
BVPS
1.6
6.9
NM
40.7
1.0
5.8
‐1.1
43.2
1.4
5.3
‐0.6
45.3
3.4
7.1
0.3
48.4
3.7
8.0
0.0
52.1
ROCE %
ROE %
ROIC %
EBITDA Margin %
Net Margin %
‐7.1
3.9
‐0.5
‐3.5
‐2.6
‐4.0
2.3
4.4
‐1.8
‐3.9
‐2.2
5.2
5.7
‐1.0
‐2.1
5.7
7.0
5.3
2.0
0.7
6.5
7.1
6.1
2.0
0.8
PER (x)
P/BV (x)
P/CEPS (x)
EV/EBITDA (x)
Dividend Yield %
28.2x
1.1x
6.6x
14.9x
44.3x
1.0x
7.8x
12.8x
32.3x
1.0x
8.5x
14.3x
13.3x
0.9x
6.4x
9.2x
12.1x
0.9x
5.7x
8.0x
m cap/sales (x)
net debt/equity (x)
net debt/ebitda (x)
0.77x
0.1x
0.8x
0.78x
0.0x
0.3x
0.7x
0.0x
‐0.4x
0.6x
‐0.1x
‐0.6x
0.5x
‐0.1x
‐0.6x
Source:Company filings; IndiaNivesh Research
NIIT Ltd | Result Update
January 18, 2015 | 4
Result Update (contd...)
Disclaimer: This document has been prepared by IndiaNivesh Securities Private Limited (“INSPL”), for use by the recipient as information only and is not for circulation or public distribution. INSPL includes
subsidiaries, group and associate companies, promoters, employees and affiliates. INSPL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered
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performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSPL does not take responsibility
thereof. The research analysts of INSPL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based
on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not
match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or
appropriate to recipients’ specific circumstances. INSPL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein
or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change
without any notice. INSPL directors/employees and its clients may have holdings in the stocks mentioned in the document.
This report is based / focused on fundamentals of the Company and forward-looking statements as such, may not match with a report on a company’s technical analysis report
Each of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report
accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this report: Daljeet S Kohli, Amar Maurya, Abhishek Jain, Yogesh Hotwani, Prerna Jhunjhunwala, Kaushal Patel, Rahul Koli, Tushar Manudhane & Dharmesh Kant.
Following table contains the disclosure of interest in order to adhere to utmost transparency in the matter:
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Research Section - http://www.indianivesh.in/Research/Holding_Disclosure.aspx?id=10- link).
Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks.
INSPL and its affiliates may have investment positions in the stocks recommended in this report.
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No (except to the extent of shares held by Research analyst or INSPL or its relatives'/associates')
company and nature of such financial interest
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Please refer to the important 'Stock Holding Disclosure' report on the IndiaNivesh website (investment
in securities of the subject company, at the end of the month immediately preceding the date
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of publication of the document.
Also, please refer to the latest update on respective stocks for the disclosure status in respect of those
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6. Research analyst or INSPL or its relatives'/associates' any other material conflict of interest
at the time of publication of the document
No
7. Has research analyst or INSPL or its associates received any compensation from the subject
company in the past 12 months
No
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securities for the subject company in the past 12 months
No
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or merchant banking or brokerage services from the subject company in the past 12 months
No
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other than investment banking or merchant banking or brokerage services from the subject
company in the past 12 months
No
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from the subject company or third party in connection with the document.
No
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No
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No
14. Other disclosures
No
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without any prior notice. INSPL reserves the right to make modifications and alternations to this statement, as may be required, from time to time.
Definitions of ratings
BUY. We expect this stock to deliver more than 15% returns over the next 12 months.
HOLD. We expect this stock to deliver -15% to +15% returns over the next 12 months.
SELL. We expect this stock to deliver <-15% returns over the next 12 months.
Our target prices are on a 12-month horizon basis.
Other definitions
NR = Not Rated. The investment rating and target price, if any, have been arrived at due to certain circumstances not in control of INSPL
CS = Coverage Suspended. INSPL has suspended coverage of this company.
UR=Under Review. Such e invest review happens when any developments have already occurred or likely to occur in target company & INSPL analyst is waiting for some more information to draw conclusion on
rating/target.
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NM = Not Meaningful. The information is not meaningful and is therefore excluded.
Research Analyst has not served as an officer, director or employee of Subject Company
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company in the list browse companies and select 1 year in icon YTD in the price chart)
IndiaNivesh Securities Private Limited
601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai 400 007.
Tel: (022) 66188800 / Fax: (022) 66188899
e-mail: [email protected] | Website: www.indianivesh.in
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IndiaNivesh Research
NIIT Ltd | Result Update
January 18, 2015 | 5
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva INDNIV.