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NIIT Ltd.: Conference call extracts

Nov 26, 2008

We recently had a conference call with the management team of NIIT Ltd. to get an overview of the companyís current performance and future prospects. Here are the excerpts of the discussion. NIITís business
NIIT Ltd. is Indiaís premier IT training company with a 30% share of the Indian IT education and training market. The company has a major presence in the retail segment, which caters to the staffing requirements of IT and BPO sectors. Apart from the above segments, the company earns nearly 40% of its revenues from the corporate segment, where it provides learning solutions, e-learning and content development solutions to technology and other companies, mainly in the US and the UK.

Going forward
The company believes that demand for skilled professionals in future will be the key growth driver. The IT industry has grown at a CAGR of 33.5% from FY04 to FY07 and is expected to grow at 21% to 24% CAGR going forward (Source: NASSCOM). Currently, while the sector is passing through challenging times amidst the financial crisis and global economic slowdown, the demand for skilled professionals continues to be intact with IT business poised to gather momentum in the long run. The requirement for skilled people in the sector continues to grow at a healthy rate, which will definitely benefit the company. We have analysed the future prospects of each of the companyís businesses based on the interaction with the management.

  • Individual learning solution: NIITís offers career and non-career programmes both in India and other developing countries. More than 90% of the revenues come from the careers segment. This is the core offering of NIIT. This segment has a geographic mix skewed towards Asian nations (India contributing 64%, China 16%, and rest of the world 20%), which insulates it to great extent from the global slowdown. The company expects this segment to grow by 25% YoY going forward. The operating margins (26% in 2QFY09) are expected to grow by 1% to 1.3% YoY.

  • Finance & management training: This segment is part of individual learning solutions. NIIT offers non IT related offering through this segment. There are two courses in this segment namely NIIT IFBI (training for Finance, Banking, Insurance and allied services) and NIIT Imperia (Executive management education in IIMA, IIMC and IIMI). This segment was launched only in October 2006 and currently it contributes to just about 3% of total revenues. The company is ramping up this activity very fast and this is evident from the growth in the number of centres. It was started with initially 6 centresand the company plans to take it to 30 centres by FY09. The contribution of this segment to the total revenues is expected to touch 10% by FY10. During FY08 the company partnered with leading banks and business schools to strengthen NIIT Imperia. It also entered into strategic alliance with Educational Testing Service (ETS) which will allow NIIT Litmus to offer ETSís TOEIC (Test of English for International Communication) in India.

  • Schools: NIIT focuses on training in schools, both government and private, through this segment. Currently, 30% revenues come from private schools and remaining 70% comes from government schools. As per the management, NIIT's institutional business is expected to grow at a slow pace going forward, as decision-making by the government does take time. However, in FY08 NIIT has received major orders from the states of Bihar, Maharashtra, Tripura and Meghalaya, besides renewal contracts from the states of Andhra Pradesh and Himachal Pradesh. The total number of schools serviced by the Company has reached 7,700. The growth in this segment is mainly expected to come from the private school business. The management has indicated that this segment is expected to grow at the rate 40% YoY going forward.

  • Corporate learning solutions: Through this division the company provides training to technology companies and it service offerings include platform technology, learning content and learning delivery. The company expects growth in this segment to be driven by the acquisition of US-based company Element K, which was acquired in August 2006. The company expects that the integration of learning platforms of NIIT and Element K to result into lower costs and global reach for NIIT.

At the current price of Rs 22, the stock of NIIT Ltd. is trading at 6.8 times its trailing 12-month earnings. Considering the fact that the IT industry is expected to reasonably strong growth (between 21% and 24% annually) over the medium-term, the improvement in sentiment for IT as a career and favourable trends in recruiting IT personnel, is expected to be favorable for NIITís business. The increase in corporate spends on training in the US, new product launches by technology majors like Microsoft and greater interest in training outsourcing from European corporates also provides NIIT with a good opportunity to grow at a faster rate in the medium-to-long term. However, risks such as the volatile nature of the institutional business and its lower margins could play spoilsport.

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