NIIT Limited (NIIT) posted topline growth of 10.4% y-o-y in 4QFY2009. Segment-wise, it was the Individual Learning Solutions Business-IT (ILS-IT) that clocked decent growth of 15% y-o-y in revenues, which included Rs1.5 crore revenues from the newly-launched BPO training initiative NIIT Uniqua.
On the other hand, ILS-FMT saw revenues crash over 55% y-o-y. This segment has been adversely impacted by the economic slowdown, with private sector banks freezing hiring.
The Corporate Learning Solutions (CLS) Business saw decent growth of 11% yoy, which is a heartening feature.
The company has said that it has been able to take clients away from the market leader SkillSoft, which has enabled this performance. Rupee depreciation also led to Rupee revenues growing at a faster pace than Dollar revenues.
The School Learning Solutions (SLS) Business recorded a 16.6% yoy growth, a significant comedown from over 70% growth seen in 3QFY2009.
With the Code of Conduct coming into effect in view of the General Elections held, delays were seen in new tenders and decision making. Government Schools grew by just 10.6% y-o-y, while Private Schools grew by a robust 37.8% y-o-y.
The environment remains cautious and general sentiment remains weak. The company expects this situation to improve over the next 2-3 quarters, with a recovery anticipated.
This is likely to lead to faster pick-up in demand for the company’s services across verticals. With private sector banks expected to resume hiring over the next few quarters, the ILS-FMT part of the business should pick up, even as the SLS Business is expected to remain stable.
A sustainable recovery in the US economy is the key trigger for revenue growth in the ILS-IT and CLS Businesses.
Going ahead, we expect NIIT to clock CAGRs of 11.4% and 14% in topline and bottomline, respectively over FY2009-11E.
The current turmoil in the global economy and slowdown in the domestic economy are likely to impact NIIT’s business in FY2010, with the ILS-IT, ILS-FMT and CLS Businesses in particular all expected to witness an adverse impact, even as the SLS Business’ resilience to the slowdown is likely to enable it to grow at a good pace.
We have factored in an economic recovery in FY2011 and expect the ILT-IT Business to bounce back to higher levels of growth from that fiscal.
In terms of segment-wise estimates, we expect the ILS-IT Business to grow at a 17.7% CAGR over the mentioned period, SLS at a 25.6% CAGR and CLS at a 4.1% CAGR, while ILS-FMT is expected to clock a 5% compounded de-growth over the period.
At current levels, the stock is trading at 9.3x FY2011E EPS. Given the expected recovery in the Indian as well as global economy in FY2011, we believe NIIT is well-positioned to leverage the recovery to its advantage.
We thus upgrade the stock to ACCUMULATE from Neutral, with a target price of Rs55.