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NIIT: Changing gears - Views on News from Equitymaster
 
 
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  • Oct 17, 2000

    NIIT: Changing gears

    NIIT has shown outstanding performance for FY01 by declaring 61% rise in net profits on a revenues of Rs 7.5 bn. Accelerated growth in earnings was achieved due to a strong order book in software services and an aggressive growth initiative in education business. The company has transformed itself from an education company to a global e-business company having presence in 26 countries across the world. NIITís wide spread network of education institutes would also enable it to source talent for its software business easily.

    NIIT is a global company in a true sense unlike other software majors, which derive more than 50% of their revenues from the US market. The company has an excellent geographic mix where around 46% of its revenue come from India followed by 38% from US and the balance from Europe and Asia Pacific. It is also spreading its IT training business into Thailand, Philippines and Australia.

    Profits growing faster than sales
    Year ended September 1998 1999 2000 CAGR
    (3 yrs)
    Gross sales 4,576 5,813 7,499 28.0%
    Total revenues 4,678 5,973 7,690 28.2%
    Gross profit 1,554 1,977 2,611 29.6%
    Depreciation 294 436 354 9.7%
    Interest 230 183 0  
    Profit before tax 1,132 1,518 2,447 47.0%
    Tax 50 90 144 69.7%
    Profit after tax 1,083 1,428 2,241 43.8%

    During the year NIIT has entered into several alliances in various areas, which will allow the company to acquire latest technology and will enhance the profit earning capacity. These includes:

    • Strategic alliance with classteacher.com, a comprehensive Internet based communication and learning solution for schools.
    • Tie up with MedVarsity, a joint venture between NIIT and Apollo hospitals to provide web based learning in the field of medicine.
    • Partnership with NETg, USA to access its global customers and to customize NETg courses using NIITís capabilities.
    • Collaboration with Infocomm Development Authority of Singapore to place trained and experienced NIIT students with Singapore companies, the only Indian company invited to do so.
    • Large e-business & e-knowledge solutions order from Toshiba, NTT Data and Macmillan.
    • Punjab Government order for training students in the government schools in computers throughout Punjab.

    In line with NIIT's strategic decision to focus on the Internet technologies, it identified e-business solutions, e-transformation solutions and e-knowledge solutions as the key growth drivers. In FY01 software services contributed 49% of its total revenues. The contribution from e-revenues to global revenues increased to 41% in 4QFY01 from 4% in 1QFY00. NIITís e-revenues have grown consistently over the last eight quarters as shown below:

    FY00 FY01
    Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
    4.0% 9.0% 15.0% 25.0% 31.0% 35.0% 38.0% 41.0%

    Also the fresh order intake of US$ 124 m in the software solutions business represents an impressive growth of 102% over the same period last year. Thus NIITís well diversified geographic mix, de-risked business model and strategy of growing inorganically will enable it to maintain its growth rate in future. We believe the company should be able to grow its revenues at a CAGR of 33% in the next two years.

    At the current market price of Rs 1,408, NIIT is trading at a P/E of 24 times its FY01 earnings and 18 times its FY02 projected earnings. The current valuations of the company are lowest compared to its historic valuations, which is expected to improve with its remarkable financial performance fueled by higher revenues from software services and focus on inorganic growth.

    Year ended September 1997 1998 1999 2000
    Avg. market price (Rs) 417 1,148 2,017 1,408
    Market Cap / Sales (x) 3.3 6.5 13.4 7.2
    P/E (x) 23.7 40.9 54.5 24.2
    PEG ratio (x) 0.6 0.7 1.7 0.4

    * Current market price

     

     

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