Elara Capital has a buy call on NIIT Technologies with a target price of Rs 1,410.The current market price of NIIT Technologies is Rs 1,134.20.Time period given by brokerage is one year when NIIT Technologies price can reach defined target.
Investment rationale by brokeragePlaying David- beats bigger peers in $ 10mn+ client adds: NIIT Technologies (NITEC IN) added two $10mn+ clients over 2QFY16-2QFY19, outpacing larger peers, Mphasis and Hexaware.
This has been possible because of May 2015 acquisition of business process management implementation specialist, Incessant Technologies (Not Listed).
However, it has not been reflected fully in revenue growth where NIIT Tech falls squarely in middle of peer group reporting a 1.8 per cent CQGR over 2QFY16-2QFY19 (we estimate organic growth at 1.7 per cent) compared to 3.2 per cent for LTI and 2.6 per cent each for Mindtree and Hexaware.
NIIT Techs Top-5 clients have been unable to match revenue momentum from newly acquired clients, slowing overall growth.Broad-based growth- fewer execution risks vs most peers: NIIT Techs growth is in sharp contrast to bigger peer, Mphasis.
Over 2QFY16-2QFY19, NIIT Tech got 28 per cent of its incremental revenue from Top-10 clients while Mphasis entire incremental revenue came from Top-10 clients.
NIIT Techs incremental revenue by vertical and geography also has been broad-based.Can penetrate and radiate- needs more Fortune-100 clients: Over 1QFY18-2QFY19, NIIT Tech has added most $ 1mn+ clients among peers barring LTI (which added one more than NIIT Tech at 17), demonstrating a good ability to penetrate new clients across its focus verticals.
NIIT Tech matches bigger peers like Hexaware in scaling clients in $ 5mn+ tiers over 1QFY16-2QFY19, proving its ability to cross-sell and scale up accounts (radiate).
We see foundation for a long runway of growth and think it can be strengthened by a named logo hunting strategy to add new Fortune-100 clients with sufficiently large IT spending to help NIIT Tech move to $1bn+ territory.