Healthy momentum as uptrend in deal wins continue
In-line operational performance: 2QFY20 USD revenue grew 14% YoY to USD149m (in-line), EBIT grew 10% YoY to INR1,451m (v/s est. of 9%). PBT was flat YoY while PAT grew 7% YoY to INR1,195m (in-line with est. of 7.4%). CC revenue growth was 8.5% QoQ (above our est. 6.5%). EBIT margin expanded 110bp QoQ to 14.0% (in line with our est. of 13.7%). 1HFY20 revenue/EBIT/PAT were up 14%/17%/12%.
* Broad-based growth, but for one top-5 client: Organic growth during the quarter stood at 4.1% QoQ CC. In terms of verticals, growth was broadbased; Transportation grew 5.8% QoQ CC, Insurance was up 15.3% QoQ CC, BFS was up 9.4% QoQ CC while others grew 0.8% QoQ CC. Strong sequential growth in verticals was also a result of USD6m contribution from the acquisition of Wishworks. BFS growth was strong; however, organically it was moderated due to spending cuts in one of its top-5 clients in the capital markets segment. NITEC has not lost any wallet share within the client; but expects further ramp-down in revenue from the client in the next quarter, post which it will bottom out.
* Strong deal wins should get the party going: Deal wins during the quarter yet again out-scaled the revenue with TCV of USD176m. Deals win remained broad-based with USD50m wins in Travel, USD20m in BFS, USD40m in Insurance and USD60m in others. Strong deal wins is a result of micro focus on select verticals and changes in the sales incentive structure. During the quarter, NITEC won USD70m deals from APAC, which contributes 16% to total revenues.
* Valuation and view: We expect NITEC’s FY19-21 revenue/EPS to witness CAGR of 13.5%/16.7%. NITEC trades at 19.9x/16.3x FY20E/FY21E earnings. Our price target of INR1,550 discounts forward earnings by 16x and implies a 6% upside. Maintain Neutral given limited upside.
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