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NIIT – Vision 2006

Nov 21, 2000

NIIT pioneered IT training more than 18 years ago and today trains over 200,000 students in 1,753 centres spread across 25 countries worldwide. The company employs over 4,000 people operating through wholly owned subsidiaries in the US, Europe, Asia Pacific, Greater China, Japan and India. It enjoys a market share of 40% in IT training with a world-renowned brand. NIIT has targeted to become Rs 100 bn company by 2006. The company plans to achieve this target by its ‘FastForward’ plan, which envisages independent business units (IBU) and a corporate structure within the company. Currently, the company has divided its business into four different IBUs – education & training, projects, software solutions and knowledge solutions. While software solutions comprise e business and client server, knowledge management, implies the setting up of call centres. Thus, NIIT has a respectable business model.

During the past six years the company’s revenues and profits have witnessed a compounded annual growth rate (CAGR) of 42% and 48% respectively. To achieve the target of Rs 100 bn in the next six years, NIIT will have to grow its topline by a CAGR of 54%. Keeping in mind the change in the business mix of the company (education & training comprise only 51% of the turnover currently from 60% in 1996) and increasing focus on the software solutions business (margins in this business are almost double that in the training business) the company should be able to achieve its target.

Changing business mix
Year ended September 30 1996 1997 1998 1999 2000
Education & Training 60.0% 55.9% 54.7% 53.3% 51.2%
Software & Consultancy 25.0% 22.9% 23.5% 23.6% 23.7%
Educational software 14.8% 20.9% 21.5% 22.9% 24.9%
Software as a % of total 39.8% 43.8% 45.0% 46.5% 48.6%

However, the company’s software solutions business is still at a lower value chainNIIT is moving up the software value chain by executing several e-consulting and e-strategy assignments for its customers. Revenues from e-business now contribute 36% of total revenues from software services business.

At the current market price of Rs 1,609 NIIT is trading at a P/E of 28 times its September 2000 earnings and 21 times our projected earnings for the next year. The company’s current valuations are well below its historic P/E of 45-55 times. In the coming years if the company is successfully able to move up the software value chain, its profits can grow at a CAGR of 50%. This could trigger a re-rating in the stock.

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