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NIIT: A SWOT analysis
Sep 6, 2005

The Indian IT training industry appears to be on the mend of late. In FY05, industry revenues grew for the first time since FY01. Till FY01, led by the ‘tech bubble’, the industry grew at a scorching pace. In fact, it grew at a CAGR of 41% from FY96 to FY01. However, with the bursting of the tech bubble, the industry was badly hit. From FY01 to FY04, industry revenues declined at a CAGR of 24%. People did not sign up for long-term courses and the perception of IT as a career diminished significantly. However, with consolidation and strong growth witnessed in the IT industry, in FY05, IT training industry revenues grew by 10%. Since the difficult days following FY01, the industry has undergone a metamorphosis. Consolidation was the buzzword during FY01-04, with the non-serious players exiting the business and the smaller/fringe players being taken over by the larger ones. Thus, the industry at present is largely oligopolistic in nature, with a few players controlling a greater proportion of the market. In this write-up, we do a SWOT analysis of NIIT Limited, India’s largest IT training company.

Strengths
Market leader: NIIT is the market leader in the Indian IT training industry. As per the latest edition of DataQuest magazine, the company has a 31% share of the market. Its next-largest competitor, Aptech, has an 11% share, clearly reflecting a considerable gap between the top two players in the industry. Given that it is the market leader in a relatively mature industry, going forward, it is expected to consolidate its leadership.

Brand name: NIIT is undoubtedly the number one IT training brand in the country. The company is synonymous with IT training in India and its flagship GNIIT course is recognised in the industry as a value-added course that builds the skills necessary to work in the IT industry.

Big reach and centres in profitable metro areas: NIIT has centres across the country and is particularly strong in the more profitable urban areas, where realisations per student tend to be higher and thus better margins. The company has over 750 retail centres all over India, catering to the staffing needs of the IT and ITES industries.

Strong corporate business: NIIT’s corporate business segment is the most profitable segment of the company. Through this, the company provides corporate training, e-learning and content development solutions to technology and other companies, mainly in the US. This segment has offshore capabilities, in the sense that services like content development can be done offshore in India for companies located in the US, which gives the company better margins, similar to those in software services.

Weaknesses
Government business vulnerable to lumpiness: NIIT’s other business segment is the institutional segment, which contributes almost 30% to its total revenues. This segment basically caters to the government, where the government’s commitment to provide IT education to schoolchildren is the main driver. However, in this segment, due to the government taking time to make decisions and time required to give grants, order books from this segment are expected to be lumpy in nature. Also, NIIT makes investments while servicing this segment, in terms of hardware and infrastructure. Thus, it could prove to be a marginal drain on margins in the near-term. Another point to be noted is that this segment is highly competitive with players like Tata Infotech and Aptech also in the fray. Thus, aggressive pricing is generally the norm, resulting in lower margins in this business.

Opportunities
Strong growth in the IT-ITES industries: The Indian IT and ITES sectors are estimated to grow at a strong pace, with the IT industry estimated to grow at around 30% and the ITES industry at around 40% in FY06, as per NASSCOM. The retail segment of NIIT tracks this with a lag and going forward, this segment is expected to be the major growth driver for the company. Given its market leadership position, NIIT appears set to capitalise on this growth. The demand for non-engineers in services like software testing and validation is expected to be another important driver of growth in this segment. As per International Data Corporation (IDC), the Indian IT training market is expected to grow at a CAGR of 12.6% till 2008 and NIIT, being the market leader, is expected to grow at a faster rate.

International business: NIIT is present in over 30 countries worldwide. However, China is expected to be the major driver of international revenues. In 1QFY06, revenues in China grew by as much as 40% YoY. IDC has estimated the Chinese IT training market to grow at around 19.4% CAGR till 2008 and NIIT expects this geography to be a strong growth area.

Threats
Low barriers to entry: The IT industry has low barriers to entry. As a result, this could pose a threat to incumbents like NIIT. As much as 47% of the market is cornered by fringe players and to that extent, the industry is fragmented. These players could offer price discounts in order to lure students away from established players like NIIT and this could hurt the company’s performance.

Conclusion
Given the low entry barriers in this business, new entrants can enter this business without too may difficulties and thus, to that extent, given possible price discounts offered by them, could affect the company in the short term. Also, in order to expand in rural areas from the current metro towns that NIIT has a strong presence in, could put pressure on margins, as IT and BPO companies look to enter smaller town and cities for human resources.

On the positive side, however, the attractiveness of IT as a career has once again become positive after the tech bubble burst at the start of this century. BPO is also expected to be a huge employment generator and possibly over the longer term, has the potential to create more jobs than even IT, since even graduates out of college can join a BPO and make a career in it. Thus, this trend is a big positive and is clearly a strong growth opportunity. The international business, particularly China, also holds promise for NIIT. The corporate segment is expected to aid margins, going forward.

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