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Software education: The bleeding continues - Views on News from Equitymaster
 
 
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  • 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
    registrations
    % of
    revenues
    Realization
    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
    Total
    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.

     

     

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