NIIT Technologies, the mid-cap IT services player which witnessed rate cuts from some of its large clients (its overall revenues were down 6.8 per cent in FY10), has been developing non-linear revenues as its strategy for growth.
NIIT Tech has made a good acquisition in Room Solutions, which contributes to around 10 per cent of the total revenue, and is helping it drive its non-linear initiatives. Onkar says, “Th is solution (Room) has also been clocking margins of around 26 per cent on a standalone-basis over the September-ended quarter.”
Off shore revenues have increased to 43 per cent in Q3FY11, from 38 per cent in Q1FY09, while the share of onsite revenues
has declined from 62 per cent to 57 per cent in Q3FY11. Increase in off shore revenues has a positive impact on margins even though it has a revenue defl ationary eff ect on revenues due to lower off shore billing rates. “We believe that broad-based growth and NIIT Tech’s niche off ering would lead to strong profi tability,” says Anand. However, that may not translate to immediate gain in stock prices. Sheshadri of RBS Securities observes that the stock trades at a discount of 5-7 per cent compared with most of its mid-cap peers. He says, “Stock performance could be subdued in the near term, given the anticipated revenue decline [tapering down of BSF revenues] and margin pressures due to off shore wage hikes in Q3FY11, but should pick up fourth quarter onwards.” For Q3 FY11, NIIT Tech reported a 7.4 per cent sequential decline in revenues to Rs 300.6 crore which was anticipated due to lower hardware revenues (Rs 14.5 crore). However, despite a salary hike margins surprised positively on improved off shoring (positive 200 bps), higher utilisation (positive 100 bps) and lower bought out component. Operating margin for the quarter expanded 242 basis points quarter-on-quarter to 20.7 per cent.