Posted by : Kapil Tuesday, January 21, 2014

Company Name: NIIT Limited
Last Update: January 22, 2014

NIIT is a leading education and training company based in India. Its present in three primary segments
a) Individual Learning Solutions: Vocational Training in IT, Banking and other services areas
b) Corporate Learning Solutions: Managed Training Services (MTS) and custom content development
c) School Learning Solutions: Provides technology based products and tools to schools

Valuation (at CMP of Rs 28 per share)

Investment Thesis:
  • The company appears to be grossly undervalued at current market price of Rs 28 per share
  • NIIT owns 23.98% of NIIT Technologies (a mid-tier IT company). The value of these shares is Rs 5880 million, which is more than the current market cap of NIIT Limited. 
  • With Net Debt of Rs 632 million (as of December 31), and assuming 25% discount to its holding value of NIIT Technologies, the implied enterprise value of the business is just Rs 841 million
  • With a Revenue of Rs 9600 million last year, this is very attractive and is at historically low multiples
  • NIIT's margins and profits were depressed in the last 18 months due to slowdown in IT training 
  • Still the company had an EBITDA of Rs 530 million which is likely to improve this year. 9MFY14 company has already done roughly 500 million of EBITDA
  • What is significant is that its other business segments are beginning to make up for the impact of decline in IT and it appears that the company is turning around (see Q3 results of NIIT)
  • The star is the Corporate Training business - which is a niche area of outsourcing and is now over 40% of the business on run-rate basis. NIIT is the only listed company in the area of Managed Training Services and could get a premium as this gains scale. MTS is already 3/4th of NIIT's corporate learning solutions business
  • Capital intensity in the business is reducing as reflected by declining depreciation and AR days

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