NIIT Technologies

 

THE stock of mid-tier IT company NIIT Technologies has fallen sharply in the current stock market slump. In the past one month, the stock has fallen by 11%, faster than the 9% decline in the benchmark Sensex.

   The recent fall in the stock price and improved financials in the third quarter make valuations of NIIT Technologies reasonable at current levels.

   During the time period, NIIT Tech has outperformed broader market indices. In three months, it has posted a return of 9% compared with the fall of 3% in the Sensex. Over a six-month period, the stock has gained 25% against the 1% drop in the Sensex. It has shot up more than two-fold from its year-ago level during which time the Sensex rose by 69%.

   Like most other mid-sized IT companies, NIIT Tech's business has been hit due to a slump in global IT spends. It has reported a year-on-year drop in sales during each of the four quarters ended December 2010. The company's profitability was also under pressure since its topline shrank faster than its operating costs.

   However, the company's performance in the December 2010 quarter reflects signs of revival. Its sales grew sequentially for the second quarter in a row and this time with a healthy jump of 178 basis points in operating profitability. Its US business is experiencing a recovery. The company's fresh order intake in this region has nearly doubled to $34 million from the quarter-ago period. Overall, new orders have grown in size to $57 million from the lows of $43 million in the June '10 quarter.

   The company's management has cited improvement in business from troubled banking and finance vertical and new orders in logistics vertical as reasons for the better show. Another indication of revival is the expansion in its headcount during the December quarter. This has happened after a gap of four quarters, each of which saw a sequential fall in the workforce.

   At Monday's closing price of Rs 158.4, the stock is valued at 8.3 times its trailing 12-month earnings. P/Es of some of the other mid-tier IT players, including Mastek and Hexaware Technologies, fall in the range of 9-14. The company has booked orders worth its six-month sales. It has started witnessing traction in its major business verticals. Given this, NIIT's stock looks reasonably priced at the current level.