Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Software education: The bleeding continues - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Nov 15, 2001

    Software education: The bleeding continues

    For the past two quarters all the three software education majors Aptech, NIIT and SSI have been posting significant dip in net profits. The dip has been in the range of 80% plus.

    Not only have these companies seen registrations declining, the realisation per student has been also heading southwards. While the decline in volumes is due to the weakness in demand for software professionals, the dip in realisations is due to the undercutting by unbranded players.

    Consistent performance
    Decline in net
    profits (YoY)
    June quarter Sept quarter
    NIIT -93.2% -86.2%
    Aptech -94.1% -95.7%
    SSI -82.0% -89.9%

    There are three major streams of demand for the sector. The bulk of the demand comes from those looking for a short-term course that will help them to be familiar with computers and help operate elementary software like Microsoft office. Then there are the big-ticket courses that according to education companies provide a career option to students. While joining these kinds of courses, the students are basically looking at getting job placements. The third kind of demand stems from the fact that professionals and vocational students are looking for add on skills that will help them switch careers and improve skills.

    At this point one needs to examine what the branded courses (that come with such a huge price ticket) offer that the unbranded player cannot. In the introductory courses segment, there is no way the education majors can match up to the smaller players, as the customers are not willing to pay much. The unbranded players have far lower operating costs and hence offer the same courses at lower costs. Infact, consumers can learn these skills from the comfort of their home, which the branded players do not provide.

    Career courses: The key to margins
    Courses % of
    % of
    per student
    Career courses 27.5% 68.0% 23,691
    Add ons 22.3% 14.0% 6,018
    Introductory courses 50.2% 18.0% 3,435
    Note: Numbers for NIIT 3QFY02.

    Therefore, the areas of strength for the branded players become the add-on and career courses. For the add-on courses, these companies can and have tie up with the software companies whose products they offer or are planning to offer like Rational and Seibel. However, in the current scenario, only experienced professionals are in demand and those with qualification in packages and lesser experience are finding it difficult to get placed. The situation is very similar with the career courses too. Thus, the software education companies need to create a channel by which they can guarantee placements to see a rise in demand. This, however, is very difficult to achieve.

    Another edge that the branded players have over the unorganised segment is their significant national presence. This however comes at a cost, which are taking a toll. According to a leading financial daily, NIIT has seen four centres in the Mumbai region close over a period of one year. However, the company claims to have gained a market share of 2.5% in the quarter ended September.

    The spread
    Centres International Added during
    Sept quarter
    NIIT 147 38 2467
    Aptech 225 33 2,426
    SSI NA 52 726

    There is no doubt that once the demand for software professionals picks up, the demand for the courses too will show a turn around. Thus, it all boils down to surviving the tough times. This would mean that some of the companies might have to spend more than they earn for the time being. This might cause some of those who do not have enough cash to go out of business or be taken over by larger players. The markets have been rather excited about the second possibility over the past few days, which has caused certain stocks to run up. However, the stocks might see a decline in valuations if nothing fruitful turns up. In the meanwhile, neither the demand nor the realisations seem to be looking up for the companies. This could cause the valuations to remain range bound.



    Equitymaster requests your view! Post a comment on "Software education: The bleeding continues ". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT

    Aug 24, 2017 01:11 PM