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Prabhudas Lilladher
NIIT Tech (Buy)
CMP: ₹402.60
Target: ₹440
We met NIIT Technologies’ Chief Operating Officer Sudhir Chaturvedi to understand the demand environment and the success of new initiatives. While he acknowledged that improving demand environment is a big positive, the challenges due to rising geopolitical risk and client specific issues is a threat. He also believes that the company is two quarters away from the transformation that the management has initiated a year back. The management is keen on improving the margin to high teen from the current level. The initiatives taken are 1) Investment in S&M is apportioned from G&A; 2) Exiting hardware business (purchase for resale); 3) Initiative to improve pyramid over longer term. According to the management, the residual impact of top clients will have an impact in Q2-Q3. However, the recovery is likely from Q4FY15. Moreover, the margin is also expected to improve along the trajectory of the revenue.
We see near term pangs as a drag, but are confident about their strategic initiatives.
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