NIIT has posted a drop of 86% in net profits for 4QFY02, on a YoY basis. The dip in topline is 24%. The numbers are more or less in line with market expectations. The markets were expecting a 90% plus dip in the bottomline, in tune with the performance for 3QFY02. However, a positive element is that the company’s operating margins stood were 11% compared to the abysmally low 7% for 3QFY02. This is due to the cyclical nature of the company’s education business. The July to September quarter sees higher student registration as this quarter coincides with the beginning of the academic year for most education institutions in the country.
For the fiscal FY02 the company’s net profits have fallen by 57%. The dip in revenues is 8%. Exceptional item includes capital gains on account of transfer of online business to its subsidiary NIIT Online Learning Ltd. The numbers have come out more or less in line with market expectations. The fiscal could be described as ‘annus horribilius’ for NIIT.
First the company came out with a profit warning in March due to the global slowdown in the software business. NIIT offers latest technologies in the software business but the demand for these services saw a sharp fall in wake of the slowdown in the US economy. In the quarter that came next (June quarter), the company’s education business took a hit.
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The company’s education business is under pressure as it is witnessing declining volumes. The decline in demand for software professionals has impacted the demand for IT education adversely. Also, due to intense competition and undercutting by unorganised players the margins from this business, which contributes to more than 70% of NIIT’s topline (Indian operations), are heading south. In fact, for 3QFY02 NIIT had reported an operating loss from the education business.
The stock price might see a marginal upside due to the performance. However, in the long run the price will stay range bound due to uncertain prospects regarding the IT education sector. At the current market price of Rs 162, the stock is trading at a P/E multiple of 6 times its FY02 earnings.
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