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NIIT Ltd: Conference call extracts - Views on News from Equitymaster
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NIIT Ltd: Conference call extracts
Jun 17, 2011

We recently had a call with the management of NIIT Ltd. During the call we discussed various issues related to the company’s future growth prospects. We also talked about the company’s new business segment, international business, new delivery module, etc in detail.

Here are the key takeaways from the conference call:

Merger of Individual Learning Solutions (ILS) and New Business segments: NIIT is now working on the concept of 'One NIIT'. Under this concept it is planning to offer all the courses related to IT (Information Technology), Banking, BPO (Business Process Outsourcing), and Management at every center it has. As a result, it would not be possible to segregate and allocate the expenses individually towards ILS and the new business segments. Therefore, the company would be reporting the combined performance of these two segments together under the single head of ILS.

Breakeven of New Business: The company has three products under this segment- IFBI (training for Finance, Banking, Insurance and allied services), Uniqua (training in business processes) and Imperia (executive management education). Currently these 3 lines of business do not contribute much towards the company’s total revenues. But the management expects this to change in the future. Specifically for Imperia, the management stated that the company has forged relationships with several top business schools, which would boost revenues in the future.

With regards to the profitability of these business segments, the management confirmed that as of the fourth quarter of financial year 2010-2011, IFBI has already turned profitable (at operating level) for the company. The other two business categories are expected to break even by the end of current financial year 2011-12.

Evolv: In January 2008, NIIT acquired a controlling stake in Evolv Services Limited. Evolv is a provider of English language and communication training. The company uses this product under corporate learning solutions for BPO, KPO companies. This business is still very small but is expected to grow.

Business from African market: The company commands a strong brand name in the African market. However, it is still facing issues due to problems with regards to distribution. As a result, the company has been struggling to put its business on the right track. As Africa contributes only 3-4% of the total revenue, we do not think this to be a major risk for the company even if the problem continues to prevail in the future.

Skill development program: The management is targeting skill development beyond its existing niche of IT education. As a result, it is developing capabilities in many disciplines besides IT. The company already has some skill development centres in the smaller cities. The company has a plan to draw benefits from National Skill Development projects. But it reiterated that these will not reflect in the company’s financials in the current year.

Share of profit from associates: This comes from NIIT Limited’s holding in NIIT Technologies (NTL). As NTL is also doing well, so it will boost up the bottom line of the company. It may be noted that the management refrained from giving any specific growth guidance in this area.

GNIIT Cloud: The company is moving towards new delivery model through VSAT and online portal. In line with this, it has already launched GNIIT cloud. This product would basically compete with the printed courseware for the students. Through digital course materials, the students would have 24 x 7 learning availability. Hence these products are expected to gain wide popularity in the market. The company has plans to launch similar products in the future as well. All these would benefit the company in an immense way.

Management guidelines for the growth: The management guided an 18% growth in the combined ILS and new business segment. The management is confident of improving margins from this segment.

In the school segment, the company has faced problem in the recent past due to delays in project starts as well as payments in the government segment of the business. The company could recover some of the receivables in the month of April. As per the management, these receivables are not the bad debts. They are confident of recovering the whole due amount. Going forward, the management focus would be business from private schools. The management expects a growth of 15-20% in this segment with improving margin.

From the corporate learning business, the management expects a growth of 18-19% with the expansion in the margins.

What to expect?

The company has several good plans for the future. At the same time it continues to grow its profitability by reaching the breakeven point for its products that were launched a few years back. However, considering the impediments and risk for achieving the guided growth, we have been conservative in our estimates for both the growth as well as margins for all the three business segments.

Looking at the positive demand environment for the company business and the company’s capabilities to cater those demands, we maintain our positive view on the company.

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