Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
NIIT: Comes 3rd - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 8, 2001

    NIIT: Comes 3rd

    NIIT has joined the undistinguished list of Indian companies issuing profit warnings. It joins Geometric and Mastek to be third in the list. The problem according to NIIT is that two of its clients (in the USA) in the software group have merged leading to project consolidation and delays. Bottomline, earnings are going to be lower than expected. The company feels the US economic slowdown might play a role too and affect its earnings.

    It is quite surprising that NIIT is one of the first companies to be affected considering that it has a low exposure to exports. 61% of its income comes from exports the remaining comes from the domestic markets. The Americas account for 58% of the international business. This brings the exposure to Americas to about 35% of the total revenues i.e. exposure to the Americas is 35% for both education and software.

    NIIT has been consistently shifting its business portfolio in favour of the software business. The education business that accounted for 47% of the revenues in 1QFY00 had dropped to 44% in 1QFY01, with the software business accounting for the rest. Of the software business 55% comes from the Americas. Therefore, the exposure from Americas to the software business is 31% of the total revenues. Inspite of the reasonable exposure to the Americas the company is concerned because Americas was the region where it had recorded the highest growth of 60% (YoY) in 1QFY01. And particularly for the software business the growth rate was a brilliant 71% (YoY). Obviously, the companyís growth outlook for Q2 would have taken growth rates like these while making projections, which now seem a bit difficult to achieve.

    1QFY00 1QFY01
    Software Education Combined Software Education Combined
    Operating margins 17.8% 10.6% 14.4% 18.8% 10.9% 15.3%

    Consolidated figures

    Another very interesting fact is that NIITs operating margins from the software business are quite low. The company is into software services, SI (systems integration) and product distribution. The operating margins from software business for NIIT in 1QFY01 was 19%, which is way below the industry standards. The reasons for such low margins were the SI & product distribution business that had very low operating margins about 5%.

    NIIT is experiencing higher sales cycles in the US for large value software projects. This again could be due to better bargaining power of the customers. All these facts imply that NIIT has still not established it self as a strong brand in software services and therefore customers have an upper hand. This could give a clue to what the industry should be doing. To follow the examples set by the likes of Infosys and Wipro, which have established strong brands that customers are looking at these companies to be their strategic partners for delivering all their IT needs. And of course the next imperative for NIIT would be to move up the software value chain.

    NIIT is expecting the operating margins to take a hit in terms of lower growth. This could be due to pressure on the billing rates or the utilisation rates going down for the company. However, the company is optimistic on its outlook for Europe and Asia Pacific regions. As far as the education business was concerned the company claimed that it was unaffected.

    1QFY00 1QFY01
    Offshore 55% 51%
    Onsite 45% 49%

    The key point is how severely does this affect NIITs fundamentals. The impact should be marginal considering the fact that NIITs exposure to the US is significantly lower than others in the Industry. But what is appreciable is the fact that the company came clean on the difficulties it is facing.

    This is a call that NIIT has to respond to very smartly. Leveraging on its strength like high offshore business and access to a huge pool of talent should help it show a strong performance. Will it be able to? Nothing that says it canít.



    Equitymaster requests your view! Post a comment on "NIIT: Comes 3rd ". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    HCL Tech: Ends FY17 on Expected Lines (Quarterly Results Update - Detailed)

    Jun 29, 2017

    Volvo partnership caps a good year for HCL Technologies.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)


    • Track your investment in NIIT LTD with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks


    Compare Company With Charts