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NIIT Ltd: Another disappointing quarter

Oct 18, 2014 | Updated on Oct 30, 2019

NIIT Ltd has announced its second quarter results for 2014-2015. The company's net sales have decreased by 0.8% YoY. The net profit has fallen by 13.4% YoY for the quarter.

Performance summary
  • Consolidated net sales decreased marginally by 0.8% YoY. The continued pressure on the individual learning business was once again responsible for the flat topline performance.
  • Operating margins took a big hit in the quarter. It came in at 7% compared to 9.3% YoY. The operating profit decreased by 25.5% YoY.
  • The poor operating performance weighed heavily on the bottomline. The net profit came in at Rs 103 m. However, the standalone business continues to be in the red.

Consolidated financial snapshot
(Rs m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Sales 2,624 2,604 -0.8% 4,846 4,857 0.2%
Expenditure 2,381 2,423 1.8% 4,499 4,548 1.1%
Operating profit (EBITDA) 243 181 -25.5% 347 309 -11.0%
Operating profit margin (%) 9.3% 7.0%   7.2% 6.4%  
Other income/(expense) (77) (39)   (158) (74)  
Depreciation 177 147 -16.9% 387 318 -17.8%
Profit before tax (11) (5)   (198) (83)  
Tax 17 -   50 19 -62.0%
Profit after tax/(loss) (28) (5)   (248) (102)  
Share of associates' net profit 147 108 -26.5% 275 211 -23.3%
Net profit after tax/(loss) 119 103 -13.4% 27 109 303.7%
Net profit margin (%) 4.5% 4.0%   0.6% 2.2%  
No. of shares (m)         165.2  
Diluted earnings per share (Rs)*         1.6  
P/E ratio (x)*         29.6  
*On a trailing 12 months basis

What has driven performance in 2QFY15?
  • The company's individual learning business continues to remain under pressure. Revenues from this segment were down sharply yet again. On the positive side, the corporate training division continues to grow at a robust pace. This segment now contributes nearly half (i.e. 48%) of the company's revenues.

    Segment wise performance
    (Rs m) 2QFY14 2QFY15 Change
    Individual learning business
    Net Revenue 1,269 1,004 -20.9%
    EBITDA 121 44 -63.6%
    EBITDA margin 9.5% 4.4%  
    School learning solutions
    Net Revenue 358 318 -11.2%
    EBITDA 23 7 -69.6%
    EBITDA margin 6.4% 2.2%  
    Corporate learning solutions
    Net Revenue 993 1,248 25.7%
    EBITDA 124 144 16.1%
    EBITDA margin 12.5% 11.5%  
    Skill Building solutions
    Net Revenue 4 35 775.0%
    EBITDA (25) (13)  
    EBITDA margin N.A N.A  

  • While the company has initiated many cost saving measures, these were unable to compensate for the fall in margins in this quarter. The individual learning business carries high operating leverage (i.e. high fixed costs, including marketing costs) and thus, the margins are vulnerable to a fall in sales.

  • At the net level, the standalone business remained in the red but the loss was contained to Rs 5 m in the quarter.
What to expect?
At the current price of Rs 46.2, the stock is trading at 29.6 times its trailing twelve months (TTM) earnings.

The company continues to be on the road to recovery. However, the management believes that the individual learning business will still need some more time to stabilize. The margins in this business are very low but most of the costs are fixed in nature. Thus, any pick-up in sales will be very positive for the bottom-line.

In the school business, the company continues to de-emphasize government school contracts. The pending order book in this segment is Rs 3,950 m. The margins from this segment were impacted in the quarter due to the completion of one large government school project.

The corporate learning business continues to fire. Over the next one to two quarters the company's revenues from this business will be above 50% (of total sales). The operating margins from this business are around 12%. As the contribution of this segment (to total sales) keeps improving, the company's margins will receive support. However, the bottomline will show an improvement only when the individual learning business picks up.

The road to recovery for the company will be a slow one. We have factored in the same into our estimates. We maintain our hold view on the stock from a FY17 perspective with a target price of Rs 60.

We would like to gently remind our subscribers that their allocation to equities should be decided upon after keeping aside some safe cash. Also within their overall exposure to equities they should kindly ensure that our suggested asset allocation is broadly followed and that no single mid cap stock comprises more than 4-5% of their portfolio.

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Jun 17, 2021 (Close)