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NIIT Ltd.: Poised for good times ahead - Views on News from Equitymaster
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NIIT Ltd.: Poised for good times ahead
May 12, 2011

NIIT Limited has announced the fourth quarter results of financial year 2010-2011 (4QFY11). The company has reported a 9.7% year-on-year (YoY) and 52.9% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated net sales grew by 9.7% YoY during fourth quarter of financial year 2010-2011 (4QFY11). This came on the back of volume growth across all its business segments. For the full year 2011 (FY11), sales grew 4.1% year-on-year (YoY). Excluding one-time pass through revenue last year in School Learning Solutions, sales grew by 9% YoY for FY11.
  • Operating margin declined by 3.6% on YoY basis during the quarter, mainly due to business development and project transition expenses. For the full year FY11, operating margins declined to 12.8% as against the 13.1% seen during the same period last year.
  • Net profits grow by 52.9% YoY, aided by higher other income (on account of divestment of non-operating assets). For the full year 2011 (FY11), net profit grew 31.4% (YoY).
  • Adds 184 employees during the quarter taking the total headcount to 4,157.
  • Recommends a final dividend of Rs 1.5 per share (yield of 2.7%).


Consolidated financial snapshot
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Sales         2,950       3,237 9.7% 11,993         12,483 4.1%
Expenditure         2,474       2,832 14.5%          10,425         10,889 4.5%
Operating profit (EBITDA) 475 405 -14.8% 1,568 1,593 1.6%
Operating profit margin (%) 16.1% 12.5%   13.1% 12.8%  
Other income/(expense) (57) 75   (329) (181)  
Depreciation 195 214 9.7% 751 854 13.7%
Profit before tax 223 266 19.2% 488 558 14.4%
Tax 80 26 -67.5% 108  89 -17.6%
Profit after tax/(loss) 143 240 67.6% 380 469 23.5%
Share of associates' net profit  104 138 32.7% 322 453 40.7%
Net profit after tax/(loss) 247 378 52.9% 702 922 31.4%
Net profit margin (%) 8.4% 11.7%   5.9% 7.4%  
No. of shares (m)       165.1 165.1  
Diluted earnings per share (Rs)*         5.6  
P/E ratio (x)*         9.8  
* Trailing 12 months basis

What has driven performance in 4QFY11?
  • NIIT recorded a 9.7% YoY growth in net sales during the quarter. The 'corporate learning solutions (CLS)' business (47% of net sales) and the 'individual learning solutions (ILS)' business (38% of net sales) witnessed a growth of 9.5% YoY and 6.7% YoY respectively during the quarter. The 'school learning solutions (SLS)' business (11.5% of net sales) witnessed a growth of 16.5% YoY during the quarter. New business segment (3.5% of net sales), witnessed a good growth of 27% YoY during the quarter.

  • NIIT's 'individual learning solutions' saw and a 15% YoY growth in Indian IT enrolments on account of 33% growth in 'Edgeineers' range of programs and 19% growth in Career program enrolments . Overall enrolments were up by 12% during the quarter. Operating margins declined to 22.6% during the quarter as compared to 24.7% seen during the same period last year. Going forward the management will focus on SAP, ERP training and infrastructure management. The company has entered into a partnership with SAP, Zend, (PHP), Google (Android) for advanced programs.

  • NIIT's 'School Learning Solutions' segment (SLS) witnessed a growth of 16.5% YoY during the quarter. This was on account of a growth of 26% YoY in the business from non-government schools. However, the segment saw significant margin erosion with margins declining to 7.5% as compared to 23.1% seen during the same period last year. This was mainly due to reorganization of SLS segment.

    The company has added 196 non-Government schools during the quarter, taking total new addition for the full year FY11 to 581. This pending order book stands at Rs 4,402 m out of which 30% is executable within the next 12 months. Going forward, the management would be concentrating on the private school business. The reason for this is that the state governments have not had a very good history in terms of collection payments. Till there was more clarity on this, the company would prefer to stay away from the government school business. The company, however, continues to derive 56% of its revenues in the schools segment from the government schools.

  • NIIT's 'Corporate Learning Solutions' (CLS) segment witnessed a 9.5% YoY growth in sales. This was due to the 12% growth in volumes for the business. This in turn was driven by the growth in 'Managed Training Services (MTS)' as well as online learning products. The margins declined by 2.3% YoY on account of adverse currency movements as well as transition costs during the quarter. Going forward, the management expects the volume growth to continue. Pending order book stood at US$ 98.2 m, with around 59% executable in the next 12 months.

  • Revenue from the new businesses segment catering to long-duration courses in banking and financial services had a strong growth during the quarter. The FMT (finance & management training) enrolments grew by massive 177% YoY during the quarter, signaling an accelerated hiring in the banking sector. Although the business still continues to make losses, total losses as a percentage of total revenues has come down during the quarter.

    Segment-wise revenue breakup
    (Rs m) 4QFY10 4QFY11 Change
    Individual learning business (IT)
    Net Revenue 1,144 1,221 6.7%
    Operating profit  282 276 -2.1%
    Operating profit margin 24.7% 22.6%  
    School learning solutions
    Net Revenue  321 374 16.5%
    Operating profit  74 28 -62.2%
    Operating profit margin 23.1% 7.5%  
    Corporate learning solutions
    Net Revenue 1,393 1,526 9.5%
    Operating profit 141 119 -15.6%
    Operating profit margin 10.1% 7.8%  
    Finance & Management training (ILS-New Businesses)
    Net Revenue 92 117 27.2%
    Operating profit (22) (20)  
    Operating profit margin -23.9% -17.1%  

  • NIIT's operating margin declined by 3.6% on a YoY basis during the quarter. The decline was mainly due to the increase in business development and project transition expenses. For the full year FY11, operating margins declined to 12.8% as against the 13.1% seen during the same period last year.

  • Despite lower operating margins, NIIT's net profits grew by 52.9% YoY, aided by higher other income (on account of divestment of non-operating assets) as well as higher share of profits from the associates. For the full year 2011 (FY11), net profit grew 31.4% (YoY).

What to expect?
At the current price of Rs 55, the stock is trading at a multiple of 9.8 times its trailing 12 months earnings. The management expects growth in all of its segments. With growth in volumes and higher realizations per student, they expect margins to improve going forward.

The company is now working on the concept of "One NIIT". Under this concept it is planning to offer all the courses related to IT, Banking, BPO, and Management at every center it has. This will help the company to grow at a faster clip. It has already launched "New Delivery Model", embedding Very Small Aperture Terminal (VSAT) based delivery, across all its centers and has also launched an online portal to expand reach and increase efficiency.

The company has already restricted its participation in government contracts. It has also embarked on aggressively following up on its receivables for its SLS business segment. Going forward, the company plans to focus more on private schools.

For its CLS business segment, the company is now focusing on higher margin annuity based businesses.

The management expects margins to improve for this financial year on account of volume growth in all its business segments. Margins would also be aided by an improved product mix, shared capacity as well as by the New Delivery Model. The company also plans to focus on strengthening its balance sheet by reducing debt and better capital redeployment.

We had recommended a 'Buy' on the stock in December 2008 and the target price has already been breached.

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