Company Report | Q1FY12 Result Update

LONG TERM INVESTMENT CALL

27 July 2011 Industry CMP (INR) Target (INR) Upside / Downside 52 week High / Low (INR) Market Cap (INR bn) 3M Avg. Daily Volumes P / E (FY12 E) Shareholding Pattern (%) Education 56 67 20% 74 / 43 9.15 449,140 8.65

Buy

Lower Margins Hurt Profit Growth

NIIT Ltd. has reported revenue of INR 3,212 mn, up 15% (YoY) but down 1% (QoQ). Revenue was slightly below our estimates. Revenue growth was largely aided by strong volume growth. Placements made by the company during the quarter were up 28% while career enrolments were up 16% on a YoY basis. On a segmental basis, Corporate Learning Solutions saw a strong 21% YoY growth while Individual Learning Solutions grew a robust 16% YoY. EBITDA for the quarter stood at INR 307 mn, up 6% (YoY) but down 24% (QoQ). This was below our estimates. EBITDA margin at 9.6% dropped 87 bps and 295 bps on an annual and quarterly basis respectively. Margin compression was seen in Q1 largely due to the impact of wage hikes and increased investments in Cloud Campus of GNIIT and NIIT One World learning platforms.

1 Year Stock Chart Net Profit in Q1 stood at INR 131 mn, significantly below our estimates. Net Profit was down marginally by 2% YoY but a whopping 65% on a QoQ basis. Margin compression during the quarter kept NIITs bottom line under pressure. The total order book of the company is currently INR 10.27 bn. Out of this, nearly half or INR 4.85 bn will be executable in the next twelve Stock Performance 1 Month -2.8% 0.0% 3 Months 0.9% -4.1% 1 Year -15.3% 2.1%
(INR in mn)

months. The total staff strength at NIIT stood at 4,434 comprising 985 sales staff, 854 indirect and 2,595 direct tutors.

NIIT Nifty

Outlook & Valuation

The management expects its investments in the Cloud Campus and One World learning platforms to improve margins going forward. Its focus will be mostly on the high margin non-government school market. With strong hiring across industries in India and the gradual recovery in training budgets in US companies, we believe the company can meet its earnings expectations. We maintain our BUY rating on this stock with a price target of INR 67, implying an upside of 20%.

Particulars Total Income EBITDA Reported PAT

Actual 3,212 307 131

Estimates 3,535 445 412

* Source: Bloomberg, Unicon Research

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Consolidated Financials
(INR in mn)

Particulars Net Revenue Operating Exp. EBITDA EBITDA Margin Depreciation EBIT EBIT (%) Interest Other Income Tax Provision Tax Rate (%) PAT Extraordinary Items Minority Interest Reported PAT PAT Margin Diluted EPS (INR)
Source: Company, Unicon Research

Q1 FY12 3,212 2,905 307 9.6% 227 80 2.5% 0 (64) (13) -81.3% 29 0 102 131 4.1% 0.8

Q1 FY11 2,782 2,492 290 10.4% 203 87 3.1% 0 (74) (15) -115.4% 28 0 105 133 4.8% 0.8

Y-o-Y 15% 17% 6% -87 bps 12% -8% -64 bps N.A. -14% -13% 3413 bps 4% N.A. -3% -2% -70 bps 0%

Q4 FY11 3,238 2,833 405 12.5% 214 191 5.9% 0 (67) 26 21.0% 98 142 138 378 11.7% 2.3

Q-o-Q -1% 3% -24% -295 bps 6% -58% -341 bps N.A. -4% -150% -10222 bps -70% -100% -26% -65% -760 bps -65%

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in