Buy NIIT Technologies for target Rs 183: PINC

PINC Research has initiated ‘buy’ on NIIT Technologies for a price target of Rs 183. NIIT has been able to build up a strong position in the insurance and travel/transportation verticals, which has enabled it to secure steady business despite being up against the Tier-1 Indian and MNC vendors. Low exposure to large size banking and financial services clients is expected to be positive for the company considering the current scenario unfolding in the global financial services market, says PINC. Sluggish growth and margins at room solutions in 2007-08, insurance underwriting solution provider that NIIT acquired in May’06 depressed overall profitability and earnings in 2007-08. However, with multiple pilots being run for its latest offering, the future offers greater stability and growth in this business. NIIT’s stocks has under performed over the past 12 months and PINC believes that current valuations factor in the near terms concerns viz. future outlook for room solutions and the impact of slower economic growth on pricing and client spend. Net cash/share of Rs22 makes valuations extremely attractive vis-a-vis growth rates in addition to a dividend yield of 5.2 per cent, which can provide downside support to the stock price. At the market price of Rs 126, NIIT is currently trading at a P/E of 4.8x and EV/EBIDT of 3.5x its 2008-09 estimates. PINC believes that current valuations are discounting the near term concerns which NIIT is facing, namely growth rates at room and the impact of global economic slowdown on revenues. Therefore, with a conservative earnings outlook and stable free cash flow generation, PINC believes there is room for valuations to improve alongwith downside protection in the form of a dividend yield currently at 5.2 per cent.