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NIIT Ltd: Forex losses, taxes dent profits - Views on News from Equitymaster
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NIIT Ltd: Forex losses, taxes dent profits
Jun 3, 2009

Performance summary
  • Revenue grows by 14.1% YoY during FY09; growth largely led by the individual learning solutions in IT domain (ILS-IT) and school learning solutions business.
  • Operating margins remain at last year’s levels mainly due to better management of costs and overall service-mix.
  • Net profits decline by 8% YoY during the fiscal, impacted by higher depreciation and tax payments. Hedging losses to the tune of Rs 135 mn due to currency fluctuation also impact profits. Excluding the hedging losses, net profits would have grown by 10%.


(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Sales 2,724 3,008 10.4% 10,068 11,486 14.1%
Expenditure 2,419 2,644 9.3% 9,031 10,300 14.1%
Operating profit (EBITDA) 304 364 19.7% 1,037 1,186 14.4%
Operating profit margin (%) 11.2% 12.1%   10.3% 10.3%  
Other income/(expense) 24 (35)   (105) (45)  
Depreciation 127 191 50.4% 529 647 22.3%
Profit before tax 201 138 -31.3% 403 494 22.6%
Tax 24 40 66.7% (21) 104  
Profit after tax/(loss) 177 98 -44.6% 424 390 -8.0%
Share of associates' net profit 75 80 6.7% 334 308 -7.8%
Net profit after tax/(loss) 252 178 -29.4% 758 698 -7.9%
Net profit margin (%) 9.3% 5.9%     6.1%  
No. of shares (m)         164.7  
Diluted earnings per share (Rs)*         4.2  
P/E ratio (x)*         14.2  
* Trailing 12 months basis

What has driven performance in FY09?
  • NIIT recorded a decent 14% YoY growth in net sales during FY09. This was mainly aided by strong performance from the company’s individual learning solutions for IT (ILS-IT) business, which grew by 23% YoY. This segment accounted for 35% of total revenues during the fiscal. Growth in this segment was driven by higher enrollments (13% YoY growth) particularly in the job-focused short term courses.

  • The school learning solutions segment, which accounts for 12% of total revenue also witnessed a strong growth of 37% during FY09. Growth in this segment was led by higher orders from government and non-government schools. As per the management, interactive classroom product “E-Guru” which was launched nationally was well received.

    Segmental performance
    (Rs m) 4QFY08 4QFY09 Change FY'08 FY'09 Change
    Individual learning business (IT)            
    Net Revenue 900 1,035 15.0% 3,241 3,982 22.9%
    Operating profit 195 237 21.5% 664 865 30.3%
    Operating profit margin 21.7% 22.9%   20.5% 21.7%  
    School learning solutions            
    Net Revenue 379 442 16.6% 1,012 1,383 36.7%
    Operating profit 44 80 81.8% 131 214 63.4%
    Operating profit margin 11.6% 18.1%   12.9% 15.5%  
    Corporate learning solutions            
    Net Revenue 1,334 1,481 11.0% 5,508 5,786 5.0%
    Operating profit 60 95 58.3% 266 183 -31.2%
    Operating profit margin 4.5% 6.4%   4.8% 3.2%  
    Finance & Management training (ILS-New Businesses)            
    Net Revenue 112 50 -55.4% 308 334 8.4%
    Operating profit 6 (48)   (26) (75) 65.3%
    Operating profit margin 5.4% -96.0%   -8.4% -22.5%  

  • The segment catering to long-duration courses in banking and financial services recorded a marginal growth of 8% YoY during FY09. The pressure was particularly seen in the finance domain.

  • NIIT’s corporate learning solutions (CLS) segment also saw a sluggish growth of 5% in revenue during the fiscal. Operating profits here declined by 32% due to decrease in corporate orders globally. Operating margins contracted on account of new products and increased sales force. Though India revenues grew at a decent 61% YoY.

  • NIIT’s operating margins were almost at their last year’s levels, and the management has attributed the same to the company’s cost control initiatives.

  • NIIT recorded a 30% YoY decline in net profits during 4QFY09. This lead to pressure on FY09 bottomline as well, which declined by 8% YoY. This can be attributed to higher depreciation on account of the launch of new products like NIIT Uniqua, a NIIT-Genpact joint venture during the year. The company also suffered huge amount of forex losses during the year due to high currency volatility. Higher taxes and lower share of associate profits also impacted the bottom line.

What to expect?
At the current price of Rs 60, the stock is trading at a multiple of 9.8 times our estimated FY11 earnings for the company, which makes it fairly valued. With government’s increased focus on education and skill development, businesses like NIIT are expected to benefit a lot in the future. As the downturn gives way to a slightly better recruitment scenario in the job market, the management is upbeat about the future potential of the company. This is well-founded on the basis of stronger order intake and customer wins achieved in last fiscal. We had recommended a Buy on the stock in December 2008 and the target price has already been breached. At the current levels, we would advise you caution.

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