• OCTOBER 6, 2000

Computer training: Choose the best

The education and training (E&T) market in India is growing at a break neck speed. Increasing competition in the market, both from international companies and unorganised players is squeezing the margins of the larger players in the sector.

The E&T industry is now maturing with schools, colleges and universities beginning to offer computer education. This was a lacuna in the education system, which career training institutes like Aptech, SSI and NIIT sought to fill. Also, with small institutes cropping up all over the country, the competition has been fierce, as growth rates flattering to 20-25%.

As can be seen from the table below, SSI has witnessed a higher growth in the quarter ended June 2000 compared to its near competitors Aptech and NIIT. SSI has a strong presence in the education business through its division SSI Education, which accounts for around 75% of its total revenues. It offers courses in high-end technologies including Java, e-commerce and client server technologies. Recently the company has acquired AlbionOrion, the company operating in high end IT solutions. This will further facilitate SSI to maintain its growth rate in future. On the other hand Aptech and NIIT are operating on a comparatively higher base than SSI which has slowed down the growth rate of both these companies. Also concentration on low ended software solution business has resulted in slow growth rate in their profits.

Comparative financial performance
Quarter ended June 30 SSI Change NIIT Change Aptech Change
Sales 675 150.4% 2,019 33.9% 1,389 36.4%
Total Income 830 199.5% 2,020 32.9% 1,390 36.4%
Operating profit 431 285.2% 875 26.1% 518 54.0%
Interest 18 -10.5% (22) 20.4% 9 210.1%
PBDT 414 349.5% 897 25.9% 509 52.7%
Depreciation 37 47.8% 88 13.4% 84 87.8%
Tax 37 330.2% 29 16.0% 55 77.4%
Profit after tax 309 432.0% 780 27.9% 371 43.6%
No. of shares (m) 12.8 38.7 25.0
*Change compared to corresponding quarter in the previous year

Responding to the transition in the education industry, NIIT has aggressively web enabled its entire education curriculum in the last six months. It has moved up the value chain by executing several e-consulting and e-strategy assignments for its customers. Software solutions now account for 60% of its business, which has resulted in its higher profits margins compared to its peers.

Key Ratios
Particulars SSI NIIT Aptech
Operating profit margin 41.0% 43.3% 37.2%
Net profit margin 37.3% 38.6% 26.7%
Cash EPS (Rs) 108.2 89.9 72.9
EPS (Rs) 96.5 80.7 59.4

SSIís stock is accorded a premium valuation in the market due to its higher growth rate and aggressive strategies. It has an established track record of making acquisitions that create significant value for the shareholders. NIIT and Aptech trade at a significant discount to SSI due to their slow topline growth. The key valuation driver for both NIIT and Aptech is likely to be their software services business, which is showing encouraging growth. Also eyeing inorganic growth will help them to improve their returns on capital employed through efficient deployment of cash.

Comparative Valuations
Particulars SSI NIIT Aptech
Market price (Rs) 2,390 1,421 462
P/E (x) 24.8 17.6 7.8
Market cap / sales (x) 15.5 7.7 2.4
* Based on June quarter annualised earnings

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