NIIT Limited is India’s largest IT training company, having a pre-eminent position in the Indian retail training segment.
In recent times, the company has diversified its business model, moving into newer verticals by leveraging its strengths in IT.
With a presence across the chain of IT learners as also expansion into newer verticals like financial services, the company is positioning itself as a ’Global Talent Development Corporation’, serving the burgeoning manpower needs of varied sectors including IT.
Sectors like Telecom, BFSI and Retail are on high growth trajectories and hence require
significant manpower to sustain growth going ahead. This gives a significant growth opportunity for NIIT to leverage.
Going ahead, it could also consider entering newer verticals like Retail, which will further drive growth. Thus, the significant challenges being faced by these varied industries on the manpower front equate to a significant growth opportunity for NIIT.
NIIT has significant exposure to the US market through its CLS business. Around 57% of its revenues are expected to come from the CLS business in FY2008, most of which are derived from the US. This leaves it vulnerable to the impact of a US recession and Rupee appreciation (in spite of the current depreciation on account of record crude prices).
In fact, in FY2008 this far, its CLS business has been adversely impacted by the strong Rupee, with Rs44.3cr being wiped off the topline (as much as 15%) and Rs7.7cr being shaved off the EBITDA (119bp) during 9MFY2008.
Thus, continued Rupee appreciation is likely to continue to impact NIIT adversely. Further, if the US recession was to lead to cuts in training outsourcing budgets, the company would likely be negatively impacted and growth would slow substantially.
We expect the company to record CAGRs of 21.5% and 36.4% in topline and bottomline respectively, over FY2007-10E. At the CMP, the stock is trading at 12.5x FY2010E EPS. We maintain an ACCUMULATE recommendation with 12-month price target of Rs123.