After the disastrous performance in 3QFY02, NIITís management has outlined a three-pronged strategy to improve its performance in the education business. The company is looking at growth in revenues from the business by increasing volumes (customer base). As a part of the strategy the company plans to
Launch new technologies
Enhance reach through expansion of network and courses
Invest in customer education programs
As part of new technology offerings NIIT has recently launched training programs on C#, the Citrix Application Server software and Microsoft Office User Specialist (MOUS) certifications.
Additionally, the company plans to increase enrollments by increasing its reach. It plans to increase the number of education centres, both in India and abroad to 3,000 by the year-end. The company also plans to offer the i-GNIIT course at mini metros. NIIT had traditionally positioned it self at the premium end in the IT education market. This has limited the companyís potential market. The I-GNIIT course costs Rs 89,000 (for three years) per student. A fees structure of this kind is more likely to appeal to a certain class, leaving out a large chunk of the population. To include this segment the company announces scholarships for the program every year.
The company is now looking to widen this target market by setting up over 50 Yuva.com centres (in Karnataka) to train the unemployed educated youth in IT skills. This initiative of NIIT seeks to provide meaningful computer education to underprivileged segments of society. According to the company the pilot Yuva.com centre has been set up at Belgaum. The company plans to open 58 more with the next few months and hopes to train more than 12,000 students annually. It will be very interesting to note the realisation per student the company gets from this initiative.
Systems integration; Products distribution
Note Margins on a consolidated basis
The companyís profits in 3QFY02 took a hit mainly due to the fact that the realisation per student for the company has come down drastically. Our projections (year ended September 2002) have taken into account that the volumes might remain flat in the education business and realisation might drop further. However, we do not see the realisation per student dropping drastically over the next fiscal. A lot depends on the timing of the US economic recovery if recovery takes place by December, the job markets and hence, the education business might see increased demand. But if the slowdown continues well into second half of 2002, then growth prospects will remain stagnant for NIITís next fiscal too.
The additional areas that the company needs to address will be the International education business. This has suffered a setback due to delays in new sign-ups of centres by prospective business partners and significant drop in operational revenues from existing centres in many countries due to lower registrations. However, the long-term IT education contract implemented in 700 schools for Govt. of Karnataka in 3QFY02 will bring in cash flows based on an annuity stream rather than one-time, transactions this might bring in predictability into the revenues.
Software is the area that NIIT is banking on to post a growth next year. The company has recently formed Legacy Maintenance & Modernisation practice. The company has suffered in the education business due to a vacuum in offerings in the maintenance sphere. To be conservative we have assumed a growth of 15% to 20% in the software business next year. The growth rate might be higher if the company manages to get some work in the maintenance area.
At the current market price of Rs 183, the stock is trading at a P/E multiple of 8 time its FY03E earnings. Therefore, the stocks valuation is unlikely to change in the near future. If the tough environment continues the realisation per student could fall further. Also, the registrations might dip. Consequently the revenues and net profits could be hurt further. A positive for the company in the next quarters could be that it gets business from its newly formed practice in the maintenance area.
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