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Stake sale to help unlock core value
* NIIT's Q4FY19 revenue growth of ~5% qoq was better than expectations as the declining Skills business returned to growth (+5% yoy). EBITDA margins improved ~100bps qoq to 9.8% but were lower than expectations due to ~100bps margin decline in the CLG business.
* Excluding the impact of exit from the Govt. school business, revenues were up ~9% yoy in FY19 (in INR), on strong 22% growth in CLG business (70% of sales). Skills business (27% of sales) declined 11% in FY19 but is showing signs of revival with ~5% growth in Q4FY19.
* The outlook for the CLG business remained intact with the ramp-up in the RECO deal (~7% incremental growth in FY20) and two large deals in contracting stage. However, the ramp-down in a couple of clients (due to M&A activity) is expected to affect Q1FY20 performance.
* The stake sale in NIIT Tech has brought in ~Rs20bn vs. ~Rs17bn current market cap of NIIT. We believe that the stake sale will help unlock its core business value (~40% EBIT CAGR over FY19/21E). We maintain Buy with a TP of Rs117 (based on 13x FY21E EPS).
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