NIIT Technologies’ revenues grew 3.5% q-o-q to $ 103 million (our estimate: -0.8% q-o-q), largely led by strong growth in the Insurance (8% q-o-q) and Travel (6.5% q-o-q) verticals. Digital too performed strongly (+9% q-o-q) in the quarter, now accounting for 19% of total revenues.
The third quarter is expected to be weak due to seasonality and spending cuts by a major US customer. However, we could see the trend improving again from 4Q, led by a pick-up in new deal wins. Following strong EBITDA margin increase of 90bp q-o-q to 16.2% in 2QFY17 (our estimate: -50bp), NITEC maintained its end-FY17 margin outlook at 17.5%.
Deal wins in 2Q stood at $ 143 million (v/s $101 million in 1QFY17). LTM deal wins rose 30% y-o-y, but executable order book grew only 3% y-o-y to $ 309 million. The Morris deal was renewed in 1HFY17 with TCV of $ 85 million, lower than current run-rate of $ 100 million due to expectations of weak discretionary spend by Morris.
Despite pick-up in deal wins, NITEC has failed to see material difference in its executable order book. We cut our revenue estimates marginally by 0.6%/1% for FY17/18E. Also, subsequent margin pressure in 3Q, lower yields on other income and higher ETR lead to further EPS cuts of 5.9%/2.7% for FY17/18E. We revise our target multiple to 9x (in line with historic average) to factor continued inconsistency in deal wins, and tepid growth in executable order book. Neutral.