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NIIT Ltd: Higher depreciation pares net - Views on News from Equitymaster
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NIIT Ltd: Higher depreciation pares net
Jan 22, 2009

Performance summary
  • Topline grows by 17% YoY during 3QFY09; growth largely led by the school learning solutions business.
  • Operating margins decline by 1.3% YoY during the quarter.
  • Net profits decline by 60% YoY during the quarter mainly on account of higher depreciation charges.
  • Adds 73 new education centres taking the total to 8,703 (including international centres).


Consolidated financial snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Sales 2,388 2,789 16.8% 7,344 8,479 15.5%
Expenditure 2,160 2,559 3.9% 6,612 7,656 15.8%
Operating profit (EBITDA) 228 230 6.8% 732 823 12.4%
Operating profit margin (%) 9.5% 8.2% 10.0% 9.7%
Other income/(expense) (32) (36) 5.2% (129) (10) -92.2%
Depreciation 127 184 5.2% 402 456 13.4%
Profit before tax 69 10 7.2% 201 357 77.6%
Tax 15 6 8.9% (45) 64
Profit after tax/(loss) 54 4 -92.6% 246 293 19.1%
Share of associates' net profit 85 51 -40.0% 259 228 -12.0%
Net profit after tax/(loss) 139 55 -60.4% 505 521 3.2%
Net profit margin (%) 5.8% 2.0% 6.9% 6.1%
No. of shares (m) 163.6
Diluted earnings per share (Rs)* 4.7
P/E ratio (x)* 4.7
* Trailing 12 months basis

What has driven performance in 3QFY09?
  • NIIT recorded a 17% YoY growth in net sales during 3QFY09. This was mainly aided by strong performance from the companyís school learning solutions business, which grew by 73% YoY (this segment accounts for 13% of total revenues). The other segment of individual learning solutions also witnessed a decent growth of 20% YoY. Growth in the segment was driven by higher enrollments, which increased by 23% YoY.

    Segmental performance
    (Rs m) 3QFY08 3QFY09 Change
    Individual learning business ( IT )
    Net Revenue 728 870 19.5%
    Operating profit 130 165 26.9%
    Operating profit margin 17.9% 19.0%
    School learning solutions
    Net Revenue 213 370 73.7%
    Operating profit 30 55 83.3%
    Operating profit margin 14.1% 14.9%
    Corporate learning solutions
    Net Revenue 1,371 1,461 6.6%
    Operating profit 65 43 -33.8%
    Operating profit margin 4.7% 2.9%
    Finance & Management training
    Net Revenue 76 77 1.3%
    Operating profit 2 2 0.0%
    Operating profit margin 2.6% 2.6%

  • NIITís operating margins declined by 1.3% YoY during 3QFY09. This was mainly on account of higher operating expenses.

  • The company added 72 new education centres during the quarter, taking the count to 8,703. On the manpower front, the base grew from 3,673 in 3QFY08 to 3,850 in 3QFY09.

  • NIIT recorded a 60% YoY decline in net profits during 3QFY09. This can be attributed to higher depreciation on account of the launch of new schools during the year. Furthermore, the launch of NIIT Uniqua, a NIIT-Genpact joint venture, also led to higher depreciation during the quarter.

What to expect?
At the current price of Rs 22, the stock is trading at a multiple 3.5 times our FY11 estimated earning. The management has indicated that amidst global economic slowdown, the company is vigilant and ready to face the challenges. It has also indicated that slow hiring by IT and banking industries has affected the company to some extent. We maintain our positive view on the stock from a 2 to 3 years perspective.

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