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NIIT: Portfolio expansion

Feb 5, 2003

The downturn in the IT industry and therefore, the slack in demand for IT education and intense competition have forced NIIT to look at other alternatives. Consequently, the company is expanding its portfolio of offerings from IT education to IT-assisted education. To develop competencies is this domain National Institute of Information Technology (NIIT Ltd) has chosen the inorganic route and has acquired eGurucool.com. eGurucool.com provides online courses for the school segment. Thus, NIIT will now offer online courses for those students who wish to take up courses additional to the inputs provided in the school. Traditionally, the 'tuition' teachers and coaching classes have dominated this segment. Though there have been some efforts to towards branding, it has usually been localized to a particular city.

Also, there have been very few coaching classes that have had a national brand. And these classes have provided coaching through correspondence. The idea of providing online coaching for schools is relatively new and e-gurucool.com has been one of its pioneers. However, neither eGurucool's website nor NIIT's press release indicates the numbers i.e., the registrations for eGurucool's courses.

However, considering the fact that NIIT has a significant presence (2,245 centres), the advantage it has is that already its logistics are in place. NIIT centers can be used as coaching classes for these courses. Considering this move, the acquisition makes a lot of sense. Thus, NIIT will have two advantages: first a strong brand that is recognized nationally and secondly, a strong logistic support in place. On the back of these advantages the company expects revenues from this new line of business to touch Rs 1 bn within the next three years

There are however, two concerns. First is the acceptability of NIIT courses. According to NIIT, a survey by IMRB research, conducted in Delhi, Mumbai and Lucknow, revealed that two-thirds who participated in the research of students ranked eGurucool as the most preferred brand, expressing willingness to pay for online education services. However, instead of taking this at face value, the number of registrations with eGrurucool and the average realisation per student would paint a much better picture. However, this information is not available. Also, the company has not disclosed the amount it has paid for the acquisition.

At the current market price of Rs 141, the stock price is trading at a P/E multiple of 26x its 1QFY03 annualised earnings. The company's move to expand its portfolio of offerings makes a lot of sense considering slow pace of growth in its existing IT education business. However, it would advisable to wait for the company to disclose some numbers before believing the company's steep guidance of Rs 1 bn within the next three years.

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