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19 June 2009

NIIT Tech Ltd : A Result Update Q4 Fy 08-09

I shudder to think about those days - the kind when no amount of logic could convince someone to buy a stock. And having bought one, you saw it go only one way - down. No fundamentals or technicals other than shorting worked. I am, of course, referrring to the period from Jan 08 to Mar 09.

In that period I started studying a stock called NIIT Tech Ltd. My first post on it in Jul 08 (A Gold Panner's Dream) showed it to be grossly undervalued. 

I still stand by it after the latest results of Q4 and my reasons are given below.

Positives
  • A 4 % increase in revenue despite the trying times.
  • A higher provision for taxation (Rs 22.4 Cr against Rs 13.8 Cr same qtr last year).
  • A high onsite-offshore mix of 60:40 implying higher billing rates.
  • An increase in revenue from the transportation and retail verticals (both potential high growth areas)
  • A reduced dependence on the top 5 clients.
  • Increased order flow of $170 Mn from US against $ 69 Mn last year. (Overall $312 Mn against $229 Mn last year). This is most heartening and an indicator of things to come - when the going gets tough, the tough get going!

Negatives
  • 1% fall in Operating margins from 19 to 18%
  • A 15% drop in Net Profit resulting in a fall in EPS to Rs 19.56 from Rs 23.05  same qtr last year attributeable to increase in operating expenses and depreciation ( a non-cash expense and hence a positive). 

Valuation
The trailing twelve months EPS is Rs 15.07 and it discounts the current market price of Rs 96 by 6.37 times. At a cost of equity of 15.7% and an expected growth rate of 12 %, the stock should be worth Rs 153, an upside of 60% from this level. 

2 comments:

sumi said...

Hi Puneet, NIIT Tech indeed is undervalued I like all the positives you have pointed out for the stock saves me a lot of work :) It is fundamentally strong. The only worrying factor is the EPS which has declined but given the market conditions it is totally understandable. 12% projected growth rate also seems conservative so you should reach your target price hopefully. Just saw a post on Patni on Rohit Chauhans blog someone has asked a comparison between NIIT tech and Patni would be nice to research this further.

Puneet said...

@ Sumi
I intend to stick with the stock for a long, long time.
I dont track Patni so will be unable to comment.

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