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NIIT Ltd: Conference call extracts

Oct 9, 2007

We recently had a conference call with the management team of NIIT Ltd. to get an overview of the company’s current performance and future prospects. Here are the excerpts of the discussion. Future growth divers: The company believes that demand for skilled professionals in future will be the key growth driver. The IT industry on a whole has grown at a CAGR of 33.5% from FY04 to FY07 (Source: NASSCOM). Currently, while the sector is not the preferred one among investors mainly due to rupee appreciation, the demand for skilled professionals continues to be robust with business momentum showing strong traction. The IT sector currently employees around 1.7 m people and has grown at a CAGR of 26.6% from FY04 to FY07 (Source: NASSCOM). Thus the requirement for skilled people in the sector continues to grow at a healthy rate, which will definitely benefit NIIT. The IT training industry has grown a little over 4% in CY06 and IT training industry stands at US$ 22.4 bn. More importantly, the IT industry is facing a shortage of employable professionals and going forward this problem is just going to worsen. So, a company like NIIT, which is a market leader in the IT training and education sector, is expected to be a key beneficiary.

Individual learning solutions: This is the strength of NIIT. The company offers career and non-career programmes both in India and other developing countries. More than 90% of its revenues come from the careers segment. To ensure smooth inflow of skilled professionals into the IT sector, NIIT will be focusing on the following things in individual business over the next 2 to 3 years:

  1. Upgrading its infrastructure and technologies at existing centres across India.

  2. Increasing seat capacity at 10% to 12% every year for next 3 years.

  3. Adding more seats in India’s tier II and III cities.

  4. Capacity utilisation to increase by 2% to 3% every year for the next 3 years.

  5. The company expects operating margins in this segment to increase anywhere in the range of 1% to 2% over the next 3 years.

Institutional learning solutions: Here NIIT focuses on training in schools, both government and private. Currently, 30% of the company’s revenues come from private schools and remaining 70% comes from government schools. As per the management, the institutional business is expected to grow at a slow pace going forward, as decision-making by the government does take time. The company is focussing more on private schools in this space. Currently, it gives training in 906 private schools. We expect the company's growth in this business to be very marginal going forward and the same will mainly come from the private school business. While the operating margin expansion in this segment looks a distant dream, the management seems confident of maintaining the same going forward.

Corporate learning solutions: Here NIIT provides training to technology companies and its service offerings include platform technology, learning content and learning delivery. After the individual learning solutions, this is the second segment where the company feels its future growth will come from mainly after the acquisition of Element K in August 2006. As per the management, this acquisition will be EPS accretive mainly due to following reasons:

  1. Once the integration of learning platforms of NIIT and Element K is complete it will result in lower cost to maintain the same.

  2. NIIT’s global reach will also increase, as it will be marketing the content library of Element K.

The main concern over here is that this segment is exposed to the threat of currency appreciation as remaining segments earn mostly in rupees.

New businesses: This is the third growth area for NIIT. The company offers two courses in this segment, namely NIIT IFBI (training for Finance, Banking, Insurance and allied services) and NIIT Imperia (Executive management education in IIMA, IIMC and IIMI). This business was launched only in October 2006 and it currently contributes to just about 1% of total revenues. The company is ramping up this activity very fast and this is evident from the growth in the number of centres. It was initially started with 6 centres and currently has 14 centres. The company plans to take it to 30 centres by FY09 and the contribution of this service to the total revenues is expected to touch 10% by FY10.

What to expect?
We had last recommended NIIT in August 2006 at Rs 47 with a 2-year target of Rs 63 (prices adjusted for bonus and stock split). The stock has already crossed the same and currently trades at significantly higher levels. We shall soon put up a detailed research report on the company.

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Mar 20, 2019 (Close)