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.