From Rs 930 to Rs 1….more or less reflects the status of most of the investors. Incidentally this is the fall in the  price of Cyber Space Infosys in the books of UTI leading to a loss of Rs 32 crores, alleges CBI. The former chairman of UTI and some of his collegues have been under investigation for their decision to invest in this share despite the lower valuation suggested by their research team. It may not be surprising if it comes out that the Research Team also found the shares worth investing but had a difference of opinion only on the valuation. 

Whatever may ultimately come out of this enquiry, investors will have learnt that even the experts are often fooled by the vagaries of the market. It is necessary however to understand that Cyber Space may be an exceptional case and investors should not get too scary. But it does highlight the fact that Risks are inherent in the system and if one wants to stay invested, one has to learn to manage this risk.

Investors would be wondering if Cyber Space experience will be repeated in other IT stocks also. While  Wipro, Satyam and Infosys the three major IT companies have recently come up with good results, results of  NIIT and Visual Soft have caused concern.

In the current situation, investors will have to explore two choices. If investors donot have the mental and financial strength to sit on their investments till the markets improve,  they should be alert to cut their losses and book quick profits on every investment they make. To make this possible, they have to be in the market perhaps through online trading accounts and keep their return expectations very moderate. 

 If however, they have the mental and financial strength, they can consider the present crisis in the market as an opportunity to pick some long term winners at a very reasonable price. In that case they should have the holding strength to wait for better times to return to the IT Stocks. 

For those looking for longer term investments, the fall in NIIT shares from its 52 week high of Rs 1954 to the current level of Rs 200 appear to be a great opportunity. Infact this the shares are at a 4 year low and in the beginning of he next week, it may come down by another Rs 20 before turning steady. 

The Company announced the June end quarter results (Q3 results for the year ending September) with a fall in net sales as well as a steep fall in net profits. The net profit for the quarter was Rs 5.29 crores as against Rs 78.02 crores for the same quarter  previous year. The Company estimates indicate a 40 % fall in operating profits in the current year and perhaps a more than proportionate fall in the net profits.

Lat year the Company had recorded a net profit of Rs 224 crores. In the first 9 months of the current year the company has earned a profit of Rs 83.45 crores. Assuming that the next quarter would also be bad, the net profit for the current year could be only around Rs 80 crores. At this level, the EPS would be only around Rs 20 and the P/E at the current price would be around 10. For a market leader this is ofcourse a steal. 

Investors would however be worried if the fall in the business and profitability is temporary and whether the price of the shares can fall further to say around Rs 100 if the company reports a loss for the next quarter.

The problems affecting NIIT follow directly from the perceived slow down in the IT sector world wide. The reported loss of jobs in the IT field  have reduced the demand for IT training. This trend  has also been reflected in most of the Engineering colleges where the  Computer science is no longer the preferred discipline for the students. 

But a rational view of the status of the IT prospects indicate that like every business, IT industry is also going through its ups and down. As Wipro and Infosys have show, stronger companies in the industry will survive and emerge stronger after the crisis. 
 

The IT industry is characterized as the “Knowledge Industry” and its dependence on “Fast Changing  Technology” is well known. When changes happen in software or hardware technology, the related skills need to be upgraded. If change is certain in the IT industry, then demand for “Training” will also be certain. For this reason, major IT Learning establishments such as NIIT will be able to come out of the present crisis and re establish themselves

There will however be some need for making readjustments in the product mix and tighter financial control. There could also be mergers and strategic alliances to improve the productivity of investments.  

Considering the profile of NIIT it is expected to make the necessary adjustments  and with  its strong Brand image, come out of the present difficulties once the IT industry prospects improve. With a cautious optimism, we can therefore consider NIIT at the present levels as a share to accumulate.

Na.Vijayashankar
July 21, 2001