Execution on right track
* NIIT has transitioned to IndAS reporting from Q1FY18 quarter, rendering full-year numbers for FY18E un-comparable.
* On like-to-like basis, the reported revenue at Rs2,088mn was largely flat yoy, dragged down by weak revenue from Skills & Career segment/Schools business while Corporate Learning Solutions revenue increased by 7% yoy (or 14% yoy in CC terms).
* While the reported operating performance was weighed down by adverse currency movements, internals indicate that progress on execution is in the right direction. Order intake at US$20.6mn was up 23% yoy; IT revenue increased by 5% yoy, enrolment for DigiNxt increased by 58% yoy.
* We estimate EPS of Rs5.4/7 for FY18/19E under IndAS reporting. The progress of internals lends credence to our positive hypothesis. We retain BUY on the stock with a TP of Rs100
Adverse currency movements mar Q1FY18 performance; internals indicate progress on execution
While reported revenue and costs are not comparable due to change in accounting standard, the reported operating profit (EBIT) of Rs61mn was lower than our estimate, affected by adverse currency movements (INR appreciation V/s USD and RMB). On a like-to-like basis, the reported revenue at Rs2,088mn was largely flat yoy, dragged down by weak revenue from SNC (Skills & Career) segment/Schools business (down 8%/12% yoy) while CLS (Corporate Learning Solutions) revenue increased by 7% yoy (14% yoy in CC terms). EBITDA margin in the CLS segment recouped from the loss of one client in late FY17, and was largely flat on a yoy basis despite transition costs for the contract of Real Estate Corporation of Ontario. The SNC segment achieved breakeven while the Schools business reported 7.8% EBITDA margin (flat yoy). At Rs104mn, the net profit jumped 13x on a yoy basis, supported by contribution of Rs120mn from associates. While the reported operating performance was weighed down by adverse currency movements, we highlight that internals indicate that the progress on execution is in the right direction. Order intake at US$20.6mn increased by 23% yoy in CC terms with revenue visibility of US$191mn. Revenue from the IT portfolio in the SNC segment increased by 5% yoy, reflecting traction led by revamping of courses portfolio. The management highlighted that the enrolment for DigiNxt increased by 58% yoy in Q1FY18, albeit on a smaller base.
Retain BUY with TP of Rs100
We estimate EPS of Rs5.4/7 for FY18/19E under IndAS reporting. The progress of internals lends credence to our positive hypothesis. We continue to back operational improvement for NIIT Ltd and keep our faith alive in ‘Resurrecting for a Strong future’ thesis of NIIT Ltd. We retain BUY on the stock with TP of 100.
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