Prabhudas Lilladher
NIIT Technologies (Buy)
CMP: ₹1,298.2
Target: ₹1,539
Barings Private Equity Asia is acquiring about 30 per cent stake from NIIT and other promoter entities and will make open offer for 26 per cent stake at ₹1,394/share. The transaction has valued NIIT Technologies at 17.9x/15.4x for FY20E/FY21E.
NIIT Tech has acquired WHISHWORKS, a MuleSoft and Big Data specialist, for about ₹290 crore which will strengthen digital offerings of NIIT Technologies with enhancement of digital transformation capabilities through automation, data and cloud-centric business.
We believe Barings can help NIIT Technologies in improving its capital allocation (NIIT Tech dividend payout about 40 per cent in FY18). We see no major change in deal wins and revenue momentum, but margin levers are stretched, leaving limited room for upgrade.
Barings have earlier acquired Hexaware at inexpensive valuations(10.2x) and then they improved its capital allocation, offered access to portfolio companies, revenue growth accelerated which helped in re-rating the P/E of Hexaware. We expect 14.9 per cent & 17.5 per cent dollar revenue and EPS CAGR for FY19E-FY21E respectively & value NIIT Tech at 17x Mar-21 earnings with unchanged target price of ₹1,539. Maintain Buy.