NIIT Technologies Ltd. (NIIT Tech); | Maintain SELL with TP of Rs.326

NIIT Technologies Ltd. (NIIT Tech); Likely to see EBITDA loss of $10 mn | Maintain SELL with TP of Rs.326 | NIIT Tech’s will see negative impact of ~$10 mn (Rs.620 mn) in consolidated EBITDA during Q4FY15. This impact is primarily on account of dispute between client and one of the APAC subsidiaries. As a result, for the time being NIIT Tech will consider this unbilled revenue as a bad-debt till this issue is not resolved.

Valuation & Outlook: At the CMP of Rs.375, the stock is trading at 18.6x FY15E, 10.3x FY16E and 8.3x FY17E earnings estimates. On account of lower than industry average revenue growth and lowest margins performance among peers, we expect NIIT Tech multiple to see some de-rating from here on. Historical two-year forward P/E was 8.8x. The key trigger for stock remains the margin expansion along with strong revenue growth. The strong deal pipeline, launch of insurance product in US and investment into new-age IT looks positive, but could take more than expected time to deliver result. Additionally, the ramp-down on key clients reduces near-term revenue outlook. We have SELL rating with target price of Rs.326 (9.0x FY16E) on NIIT Tech. (IndiaNivesh)