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NIIT Ltd.: ILS woes continued - Views on News from Equitymaster
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NIIT Ltd.: ILS woes continued
May 24, 2013

NIIT Limited announced the fourth quarter results for the financial year 2012-2013 (4QFY13).The company's net sales declined by 27.4% YoY. While the net profit declined by 89.7% YoY.

Performance summary
  • Consolidated net sales showed a negative growth of 27.4% YoY. That was because the largest business segment, viz. Individual Learning Solutions (ILS) de-grew by 36%YoY.
  • Operating margins showed a continuing declining trend and dropped by 8.5% YoY during the quarter. That was largely due to higher operating costs (as percentage of net sales).
  • 'Other Income' stood at - Rs 10m in 4QFY13 as compared to - Rs 67 m in 4QFY12. Before considering the contribution from associates, net loss of NIIT Ltd stood at Rs 113 m in 4QFY13 as compared to a profit of Rs 262 m in 4QFY12. Profit from associate, NIIT Technologies continued to have a positive impact on the net profit of NIIT Ltd, enhancing the bottom-line to Rs 27 m compared to a net profit of Rs 262 m seen during 4QFY12.
  • The total headcount reduced by 403 and stood at 3,324 as at the end of 4QFY13.
  • The Board of Directors recommended a dividend of Rs 1.6 per equity share (dividend yield of 7%)

Consolidated financial snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Sales 3,052 2,216 -27.4% 12,603 9,608 -23.8%
Expenditure 2,695 2,145 -20.4% 11,128 9,085 -18.4%
Operating profit (EBITDA) 357 71 -80.1% 1,475 523 -64.5%
Operating profit margin (%) 11.7% 3.2%   11.7% 5.4%  
Other income/(expense) (67) (10) 85.1% 1,429 (339) -123.7%
Depreciation 197 223 13.2% 874 864 -1.1%
Profit before tax 93 (162) -274.2% 2,030 (680) -133.5%
Tax (49) (49) 0.0% 1,409 (433) -130.7%
Profit after tax/(loss) 142 (113) -179.6% 621 (247) -139.8%
Share of associates' net profit  120 140 16.7% 481 509 5.8%
Net profit after tax/(loss) 262 27 -89.7% 1,102 262 -76.2%
Net profit margin (%) 8.6% 1.2%   8.7% 2.7%  
No. of shares (m)         165.1  
Diluted earnings per share (Rs)         1.6  
P/E ratio (x)*         13.2  
* On a trailing 12-months basis

What has driven the performance in 4QFY13?
  • NIIT Ltd's net consolidated sales declined by 27.4% YoY during 4QFY13 as compared to 4QFY12.

  • The ILS segment continued to suffer the most with net revenues declining by 35.5% YoY. There was loss at the EBITDA level amounting to Rs 24 m as compared to a profit of Rs 274m in 4QFY12. EBITDA margin as a result was -2.4% at the end of 4QFY13 as compared to 18% at the end of 4QFY12. For the full year, FY13, ILS segment contributed to 64% of revenue.

  • The SLS segment witnessed an increase of 22.7% YoY during the quarter. The segment's EBITDA remained flat YoY and the EBITDA margin dropped to 7.9% at the end of 4QFY13 as compared to 9.7% witnessed at the end of 4QFY12. The non Government school revenue (54% of SLS segment) grew by 23% YoY. There was an order intake of Rs 256 m and the pending order book stood at Rs 5,059 m. Out of this 27% is executable in the next 12 months. 208 private schools were added in 4QFY13. For the full year, FY13, SLS segment contributed to 13% of revenue.

  • The CLS segment continued with its good performance in 4QFY13. This was primarily because of the contribution from the Managed Training Services (MTS) sub-segment. It contributed nearly 74% of the revenues of the CLS segment. Net revenue for CLS increased by 14.6% YoY while the EBITDA increased by 28.1% YoY. EBITDA margin expanded by 1.2% YoY in 4QFY13 and stood at 10.8% at the end of 4QFY13. There was an order intake of USD 14.3 m, up 12% YoY. The pending order book stood at USD 53.3 m, out of which 66% is executable in the next 12 months. The segment also gives a revenue visibility of USD 143 million.

  • The Skill Building segment contributed to Rs 4 m of revenue in 4QFY13. The segment continues to be in the start up phase and the EBITDA losses of this segment amounted to Rs 24 m.

    Segment wise performance
    (Rs m) 4QFY12 4QFY13 Change
    Individual learning business
    Net Revenue 1,522 981 -35.5%
    EBITDA 274 -24 -108.8%
    EBITDA margin 18.0% -2.4%  
    School learning solutions
    Net Revenue 383 470 22.7%
    EBITDA 37 37 0.0%
    EBITDA margin 9.7% 7.9%  
    Corporate learning solutions
    Net Revenue 664 761 14.6%
    EBITDA 64 82 28.1%
    EBITDA margin 9.6% 10.8%  
    Skill Building solutions
    Net Revenue 1 4 300.0%
    EBITDA -17 -24 -41.2%
    EBITDA margin -1700.0% -600.0%  

  • As noted earlier, Other Income amounted to -Rs 10 m in 4QFY13 as compared to -Rs 67 m in 4QFY12. While Profit after Tax (PBT) without considering the share of income from associates was in red at Rs 162 m at the end of 4QFY13, share of associate, NIIT Technologies' net profit of Rs 140 m was enough to bring the overall net profit back in black at Rs 27 m.

What to expect?

At the yesterday's closing price of Rs 21.2, the share is trading at a multiple of 13.3 times its trailing twelve months earnings (considering continuing businesses only).

As noted above, all segments barring the Individual Learning Solutions (ILS) segment has shown resilient performances.

Our view with regard to the share remains unchanged and as was noted in the last quarter's analysis and the last recommendation report. We continue to believe that the share is getting unnecessarily penalized because of the disappointing performance of the ILS segment. Having said that, we are optimistic about the measures taken by the company, such as introduction of non IT courses and launching of GNIIT and other IT based programmes on a cloud based platform. The balance sheet position is expected to improve further as the asset releases from the Government based schools will not get reinvested back into the business, given NIIT's strategy to move away from Government Schools. This should improve the cash flows as well. The company has granted a dividend of Rs 1.6 per equity share, which translates to a yield of 7%, which is very impressive. As pointed out in our recommendation report, we expect steady dividends from the company to continue.

Considering all the above points, we maintain our 'Buy' view on the share. We would like to gently remind our subscribers that their allocation to equities should be decided upon after keeping aside some safe cash. Also within their overall exposure to equities they should kindly ensure that our suggested asset allocation is broadly followed and that no single mid cap share comprises more than 4-5% of their portfolio.

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