17 July 2013
1QFY14 Results Update | Sector: Technology
NIIT Technologies
BSE SENSEX
19,851
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Financials & Valuation
Y/E MAR
Sales
EBITDA
PAT
EPS (INR)
EPS Gr. (%)
BV/Sh
(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
S&P CNX
5,955
NITEC IN
60.3
16.0/0.3
325/196
-4/-3/-22
(INR b)
CMP: INR261
TP: INR310
Neutral
2013 2014E 2015E
20.2
24.1
27.1
3.3
2.1
35.5
7.0
182.0
21.3
26.1
7.4
1.4
4.0
2.7
44.4
25.2
216.9
22.3
27.5
5.9
1.2
4.3
2.7
45.1
5.9
219.2
20.7
26.1
5.8
1.2
Revenue growth below estimates:
NIIT Technologies' (NITEC) 1QFY14 revenue
was below our estimates, while margins were in line (EBITDA margin at 14.4%).
PAT at INR586m was above our estimate of INR477m due to higher translation
gain in other income.
Government business in India drives growth:
Growth during the quarter was
driven by the Andhra Pradesh finance department deal bagged in the
government vertical in India. Government segment revenue grew 19% QoQ and
Manufacturing grew 4.4% QoQ. Among geographies, India revenue grew 10.7%
QoQ, while Europe continued to be weak, with EMEA declining 6.3% QoQ.
USD145m worth TCV of deals during the quarter:
Company signed USD145m
worth TCV of orders in 1QFY14 (v/s USD110m in 4QFY13), including USD75m in
RoW. Total TCV includes ~USD60m announced by the Airport Authority of India
(AAI) deal and USD15m renewal with an existing client.
Margins expected to improve:
Going forward, NITEC expects margins to
improve on the back of multiple levers: [1] currency, [2] utilization and [3] better
margins in contracts like AAI and Morris.
Immigration Bill’s impact:
Around 34% of NITEC’s US-based workforce is local
citizens, while 6% holds Green Card. That implies visa dependency for 60% of the
workforce. Company will not require much effort to cross the 50% threshold
mentioned in some of the Bill’s clauses.
Valuation and view
:
We expect NITEC to post USD revenue CAGR of 13% over
FY13-15E and EPS CAGR of 12.8% during this period. While the company
continues to get valued at the lower quartile of its peers, improvement in
business margins will help drive re-rating in the stock. We expect margins to
improve in 2QFY14E; however, the same will be on the back of a huge fillip from
currency. Constant currency margin improvement remains uncertain and our
concerns relate primarily to increasing share of Indian government business and
continued weakness in NITL (insurance subsidiary in the UK). Maintain
Neutral.
Ashish Chopra
(Ashish.Chopra@MotilalOswal.com); +91 22 3982 5424
Siddharth Vora
(Siddharth.Vora@MotilalOswal.com); +91 22 3982 5585
Investors are advised to refer through disclosures made at the end of the Research Report
.

NIIT Technologies
1QFY14: Revenue growth below estimate; margins in line
Revenue was INR5,419m, 0.9% QoQ, below our estimate of INR5,575m. In
constant currency terms, revenue growth was flat QoQ and below our estimate
of 1.7% growth.
However, hardware revenue increased by INR270m QoQ to INR590m due to the
commencement of AP finance deal compared to incremental revenue of
INR47m in the quarter. Adjusting for the contribution from hardware revenue,
we saw a decline of 4.4% QoQ.
Revenue decline, excluding hardware component
Revenue - ex-pass throughs (INR m)
9.9%
3.1%
5.5%
9.3%
5.3%
12.9%
14.3%
5.6%
1.7%
7.8%
0.3%
2.6%
-4.4%
QoQ growth
Source: MOSL, Company
EBITDA margin declined 210bp QoQ to 14.4%, in line with our expectation. Key
factors driving the margin decline were: [1] wage hike of 8% offshore and 3%
onsite given during the quarter and [2] high incremental contributions from low
margin hardware revenue. GIS business revenue was at INR290m, 13% QoQ and
margins at 14% v/s 11% in 4QFY13.
EBITDA margin decline due to wage hike on expected lines
Source: MOSL, Company
PAT at INR586m was above our estimate of INR477m, in spite of lower revenue
growth, due to translation gains of INR174m during the quarter. Effective tax
rate, adjusted for one-time dividend tax paid for repatriation of dividend from
overseas subsidiaries, stood at 28.8% v/s our estimate of 27%.
17 July 2013
2

NIIT Technologies
Segment-wise performance: Weakness in
Government business in India drives growth
Transportation
vertical,
Among verticals, Government and Manufacturing verticals showed growth.
Government business grew 19% QoQ and Manufacturing grew 4.4% QoQ.
Growth in Manufacturing was driven by shifting of deal to transaction-based
outcome.
Gr - QoQ (%)
0.8
(2.8)
4.4
19.0
(7.5)
Source: MOSL, Company
Government & Manufacturing were the growing verticals
Verticals
Contr to Rev. (%)
BFSI
30.0
Transportation
36.0
Manufacturing
6.0
Government
13.0
Others
14.0
Decline in Transportation vertical (-2.8% QoQ) was due to the weakness in
Europe. It is expected to improve going forward, with the company adding five
new customers in the vertical this quarter.
India geography shows growth due to AP Finance deal
Geographies
Americas
EMEA
APAC
India
Contr to Rev. (%)
39.0
35.0
7.0
19.0
Gr - QoQ (%)
1.7
(6.3)
(13.3)
10.7
Source: MOSL, Company
Among practices and geography, AP Finance deal had a major effect this
quarter, driving up growth from IP Assets (61% QoQ) and India (10.7% QoQ).
IP Assets reflect increased non-linear revenue growth
Practice
ADM
IP Assets
Managed Services
SI & PI
BPO
Contr to Rev. (%)
60.0
13.0
9.0
13.0
5.0
Gr - QoQ (%)
(2.6)
61.0
(25.7)
(0.9)
(17.4)
Source: MOSL, Company
USD145m worth TCV of deals during the quarter, including ~USD60m Airport
Authority of India (AAI) deal
NITEC signed USD145m worth TCV of orders in 1QFY14 (v/s USD110m in
4QFY13), including USD75m in RoW. The total TCV includes ~USD60m
announced by the Airport Authority of India (AAI) deal and USD15m renewal
with an existing client.
17 July 2013
3

NIIT Technologies
Deal signings remained impressive, dominated by RoW in 1QFY14
Source: MOSL, Company
Executable order book over the next 12 months was USD263m, up 9% YoY. The
figure finally broke out of its USD240-250m range reported over the last six
quarters.
Next 12 months multiple remains constant
Source: MOSL, Company
Margins expected to see an uptick going forward
NITEC’s margins fell from ~20.5% in 2HFY11 to 14.4% in 1QFY14. Part of this was
due to management’s change in strategy of pursuing larger transformational
deals, involving costs upfront and yielding better margins later. Part of the same
is also explained by higher proportion of Government revenue (which was
below 5% of total revenue in FY11 and 13% in 1QFY14), that are extremely
competitive and involve significant element of hardware sales, thus constricting
margins.
Going forward, company expects these investments to yield benefits and
margins to improve. NITEC has the following levers to increase margins from
2QFY14: [1] currency swing will be the maximum for the company given that its
realized rate was only INR55.2/USD (Infosys was at INR56.6), [2] utilization rate
of 77.3% is the lowest in nearly five years, which should increase going forward
and [3] better margin in large contracts — AAI deal is expected to be at
international business margins and even the deal with Morris has moved to a
non-linear model (from fixed price to a transaction-based model).
17 July 2013
4

NIIT Technologies
Takeaways from management commentary
Geography-wise commentary:
Recovery is underway in the US at a moderate
pace. The same is evident in data points and action on the ground. Europe,
however, continues to remain soft and the time taken to secure business in this
region, even from existing customers, is very long. APAC remains in growth
mode, with very healthy long term prospects.
Vertical-wise commentary:
Sentiment in Travel & Transport vertical is much
better. IATA has projected an increase in both passenger and cargo demand. IT
spends in BFSI appear to be growing, both in BFS and Insurance. Gartner expects
3.9% YoY growth in IT Services spending in BFS. Manufacturing is doing
reasonably within Asia, where NITEC’s exposure to the vertical rests.
Margins commentary:
NITEC had changed its strategy in FY12 to chase large
transformation opportunities, which would come at lower margins at the
beginning and improve with the maturity of contract. Company expects these
investments to reflect on the margins from the next quarter.
Immigration Bill:
Around 34% of NITEC’s US-based workforce is local citizens,
while 6% holds Green Card. That implies visa dependency for 60% of the
workforce. Company will not require much effort to cross the 50% threshold
mentioned in some of the Bill’s clauses.
Change in estimates: Marginal upgrade in EBITDA margin
Our estimates are largely unchanged post results, barring the estimate of
marginal uptick in EBITDA margin after factoring the decline in onsite
employees. Onsite headcount declined by 8% QoQ to 1,627 employees, as sub-
contracted workforce was let go after completion of ongoing assignments.
We expect NITEC to grow revenue in constant currency by 12.5% in FY14E and
13.5% in FY15E. In FY14E, we expect EBITDA margin to improve by 40bp YoY to
16.7%. Our EPS estimates for FY14E/15E are higher by 6.5%/4.3% following the
upward revision in margins.
Change in estimates
Revised
FY14E
FY15E
57.3
57.0
419
476
16.7%
15.9%
44.4
45.1
Earlier
FY14E
FY15E
57.7
421
16.3%
41.7
57.5
468
15.3%
43.2
Change (%)
FY14E
FY15E
-0.7
-0.8
-0.3
1.7
38bp
63bp
6.5
4.3
Source: MOSL
INR/USD
USD Revenue - m
EBITDA Margin
EPS - INR
Other result highlights
17 July 2013
NITEC closed the quarter with INR2.48b of cash and equivalents, lower QoQ, due
to increase in DSOs.
Receivables in 1QFY14 stood at 98 days v/s 82 days in the previous quarter.
NITEC’s hedge book stands at ~USD67m @ INR57.85/USD.
Utilization decreased by 90bp QoQ to 77.3%.
Headcount increased by 49 employees to 8,207. Billable personnel increased by
49 to 7,562.
Attrition rate was 12.4% (v/s 12.2% in 4QFY13).
5

NIIT Technologies
Company added five new clients during the quarter (v/s five in the previous
quarter), four in the US and one in India.
Revenue proportion from fixed price contracts was 42%, 1pp QoQ.
17 July 2013
6

NIIT Technologies
NIIT Technologies: an investment profile
Company description
NIIT Technologies is a leading IT solutions
organization with over 8,200 professionals serving
customers in North America, Europe, Middle East,
Asia and Australia. Company offers comprehensive
end-to-end software solutions and services in
Application
Development
and
Management,
Managed Services, Cloud Computing and Business
Process Outsourcing to organizations in the banking
& financial services, insurance, travel &
transportation, manufacturing & distribution, and
government sectors.
Recent developments
Company signed deals worth USD145m in
1QFY14.
It signed an INR1.85b multi-year CFMS contract
with the finance department of Andhra Pradesh
government. CFMS would be the first of its kind
implementation of SAP Public Budget Formulation
(PBF) in the country.
Valuation and view
Key investment arguments
NITEC has a well-diversified portfolio of business
across verticals, services and geographies. It has
also been an early player, with a focus on
increasing revenue from non-linear segment.
Order wins in the recent quarters have been
healthy, lending visibility on revenue growth.
We expect NITEC to post USD revenue at a CAGR
of 13% over FY13-15E and an EPS CAGR of 12.8%
during this period. The stock trades at 5.9x FY14E
and 5.8x FY15E EPS.
We remain
Neutral
on the stock, with a target
price of INR310, which discounts FY15E EPS by 6x.
Sector view
Key investment risks
Revenue growth was at the cost of margins, while
headwinds on profitability are expected to drag
margins further in the next quarter.
Aggressive pursuit of growth could lead to new
deal structures and introduces higher risk.
Persistence
of
weak
macro-economic
fundamentals across geographies have been
driving the deceleration in growth for Indian IT
services. Indicators from the US are turning
positive, but it is too early to construe as a trend.
Demand fundamentals, however, are being
overridden by the potential business model
changes that the industry will be compelled to
undergo, if the Immigration Bill is passed in the
current form.
Comparative valuations
FY14E
FY15E
P/BV (x)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
EV/EBITDA (x) FY14E
FY15E
P/E (x)
NITEC
5.9
5.8
1.2
1.2
0.5
0.4
2.8
2.8
MTCL
9.2
8.0
2.3
1.8
1.1
0.9
5.2
4.2
HEXW
8.5
8.1
2.4
2.1
1.2
1.0
5.6
5.0
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
44.4
45.1
Consensus
Forecast
41.3
45.2
Variation
(%)
7.6
-0.2
Target price and recommendation
Current
Price (INR)
261
Target
Price (INR)
310
Upside
(%)
18.8
Reco.
Neutral
Shareholding pattern (%)
Mar-13
Promoter
Domestic Inst
Foreign
Others
31.3
19.5
28.8
20.4
Dec-12
31.3
17.6
27.8
23.3
Mar-12
39.1
13.1
24.9
23.0
Stock performance (1-year)
17 July 2013
7

NIIT Technologies
Financials and valuation
17 July 2013
8

NIIT Technologies
NOTES
17 July 2013
9

NIIT Technologies
This report is for personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution
and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its
affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees
to hold MOSt or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
The information contained herein is based on publicly available data or other sources believed to be reliable. While we would endeavour to update the information herein on reasonable basis, MOSt and/or
its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt and/or its affiliates from doing so. MOSt or any of its
affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. MOSt or any
of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision
based on this report or for any necessary explanation of its contents.
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, MOSt has incorporated a Disclosure of
Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Disclosure of Interest Statement
1. Analyst ownership of the stock
2. Group/Directors ownership of the stock
3. Broking relationship with company covered
4. Investment Banking relationship with company covered
NIIT TECHNOLOGIES
No
No
No
No
Disclosures
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is,
or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally
responsible for preparation of MOSt research receive compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary
to law, regulation or which would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
Regional Disclosures (outside India)
This report is intended for distribution only to persons having professional experience in matters relating to investments as described in Article 19 of the Financial Services and Markets Act 2000 (Financial
Promotion) Order 2005 (referred to as "investment professionals"). This document must not be acted on or relied on by persons who are not investment professionals. Any investment or investment activity
to which this document relates is only available to investment professionals and will be engaged in only with such persons.
For U.K.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United
States. In addition MOSL is not a registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under
applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services
described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major
institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only
available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the
U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this
report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-
dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a
research analyst account.
For U.S.
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial
Advisors Regulations and is a subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed
in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Kadambari Balachandran
Email : kadambari.balachandran@motilaloswal.com
Contact: (+65) 68189233 / 65249115
Office address: 21 (Suite 31), 16 Collyer Quay, Singapore 049318
For Singapore
Motilal Oswal Securities Ltd
17 July 2013
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 | E-mail: reports@motilaloswal.com
10