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NIIT Technologies + Mphasis – Review

October 22, 2008

NIIT Technologies reported a steady 2QFY09 with 5% Q/Q revenue growth, 4% volume growth and 80 bps Q/Q EBITDA margin decline due to salary hikes. EPS grew 5% Q/Q. Growth was driven by good performance of Room Solutions where revenues increased 17% Q/Q and EBITDA margins bounced 300 bps Q/Q. Performance was good across service lines and industry verticals with 5 new customer additions and US$ 75 of new order wins.

NIIT expects weakness in Travel and transportation vertical. This was reflected in net headcount decline in the quarter and management expects to ramp-up utilization to meet demand given tough demand environment.

NIIT Technologies is expected to report an EPS of Rs 22.10 for FY09 and a flat growth for FY10. JP Morgan has reduced the target price to Rs 100 from Rs 160 with a NEUTRAL view on the stock.

Mphasis reported a strong 2QFY09 with 13% Q/Q revenue growth, EPS growth of 79% Q/Q and EBIT margin expansion of 460bp Q/Q. Strong performance was driven by impressive 5.5% volume growth in IT Services, pricing improvement Q/Q and sustained momentum in BPO & ITO. EDS remained at ~40% of revenues, indicating growth in both EDS and non-EDS clients.

Despite the strong quarter, management was cautious in its guidance. Further, business outlook from EDS remains uncertain near term, due to both economic weakness and the HP-EDS merger.

Mphasis is expected to post an EPS of Rs 20.9 for FY09. JP Morgan is NEUTRAL on the stock with a target price of Rs 200.

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