Having impacted 35 million learners since inception, with a presence in over 40 countries and revenues of Rs 960 Crs, NIIT Ltd was rightly termed as the “McDonalds of Software Business” by the Far Eastern Economic review, 2000. The stock currently trades at Rs 25/share, taking its market cap to Rs 440 Crs. With total outstanding debt of Rs 112 Crs, the company is valued at an enterprise valuation of Rs 550 Crs.  

AREAS OF FOCUS

Individual learning, Corporate learning, School learning and Skill building solutions are the 4 major areas of focus for the company.

Individual Learning Solutions (ILS)

With nearly 1000 ILS centres around the world (approx 650 in India, 200 in China), the Individual Learning Solutions (ILS), which currently uses Cloud computing, is the company`s backbone, contributing to 50% of the overall revenues. ILS courses encompass a wide range of disciplines including IT, Engineering, Banking, Business Process Outsourcing (BPO), Insurance, Management etc. The company has tied up with a number of companies to impart training in the relevant sectors. SAP, Microsoft, Oracle, Intel etc for IT training; ICICI, Axis, HDFC and Yes Bank for Banking; GenPact, HCL, Wipro etc for BPO training; IIM Ahmedabad, IIM Calcutta, IIM Lucknow, Google for Management training. With IT hiring not doing too well this year, the ILS segment has diversified into other areas like Business Analytics. Non-IT courses have seen a 48% year on year increase in enrollments and have contributed to 17% of ILS revenues compared to 11% in the previous year. For FY 2012-13, ILS contributed to Rs 460 Crs of revenue and Rs 11 Crs of EBIDTA.

Corporate Learning Solutions (CLS)

The author of Running Training like a Business, Edward Trolley, Vice-President of Managed Training Services (MTS) at NIIT, used to work for DuPont`s training business before joining NIIT in 1996. In Argyle Conversations dated 28 August, 2012, Ed Trolley talks extensively about how global corporations are starting to see manpower training through a sharp business perspective. Unable to get answers on the return on investment for in-house training, global corporations have begun to outsource all training to reduce cost and improve the final outcome.

In line with this, NIIT`s MTS revenues have nearly tripled from Rs 85 Crs in FY 2011 to Rs 217 Crs in FY 13. As per NIIT`s Annual Report for 2012-13, their MTS customers include large multinationals from the Oil and Gas, Technology, Telecom and Financial Services sectors. The MTS division ended FY 13 with Rs 303 Crs of revenue and Rs 34 Crs of EBIDTA, contributing to 32% of the company`s revenues.

School Learning Solutions (SLS)

After burning their fingers with Government Build Own Operate Transfer (BOOT) contracts, the company has steadily increased the revenue share of non-government private schools to 59%. With its nGuru platform operating in more than 1800 schools all over India, NIIT derives nearly Rs 180 Crs of revenues and Rs 16 Crs of EBIDTA, contributing to 18% of the company`s revenues.

Skills Building Solutions (SBS)

Setup in a joint venture with the National Skills Development Corporation (NSDC), SBS currently has 34 locations offering 17 courses in diverse subjects like Auto retail, Hospitality etc.    

ELEMENTK DIVESTMENT

The company had acquired ElementK, one of the world`s largest comprehensive learning solutions provider in 2006, for a sum of $ 36.5 mi. In 2011, the company sold off ElementK for $ 110 mi, making a cool $ 58.5 mi profit. The proceeds from the sale were used to repay Rs 266 Crs of debt and shore up the balance sheet.

NIIT TECHNOLOGIES STAKE

The company has a 24% stake in NIIT Technologies Ltd, which was spun off from the company in 2004. This stake is currently valued at Rs 590 Crs, more than the enterprise valuation of the company itself.

ORIENT GLOBAL

In 2007, Intel Capital, the venture capital arm of the chip maker Intel, sold its 9.4 % stake in NIIT Ltd to Kiwi billionaire Richard Chandler`s Singapore based investment fund Orient Global for Rs 196 Crs. Intel Capital had converted its bonds into shares at Rs 44 Crs. The Rs 196 Cr sale was nearly a five – fold increase in acquisition. Currently, the same 9.4% is worth a meagre Rs 42 Crs.

FY 13 EARNINGS PROFILE

A general downturn in IT hiring has lead to a negative bottom line for FY 13. The company is on a cost rationalization drive and has laid off nearly 1000 employees in the last 2 years.

BUY RECOMMENDATION RATIONALE

–          Setup in 1981, by Mr Rajendra Pawar, a Padma Bhushan awardee and a member of the Prime Minister`s National Council on Skill development, and co-founders, Mr Vijay Thadani and Mr P.Rajendran, this company is one of the world`s best when it comes to IT training.

–          Its current enterprise valuation of Rs 550 Crs does not factor in the company`s 24% stake in NIIT Technologies.

–          NIIT is one of India`s most well known and trusted brands. The Rs 550 Crs enterprise valuation does a serious disservice to the NIIT brand which is quite well recognized not just in India, but also in the USA, Europe and China.

–          Orient Global had made an investment in this company for nearly 4.5 times the current price. The Orient Global acquisition and the current market price are an enactment of the irrational exuberance and extreme paranoia of capital markets. The fair value is somewhere in the middle of this price range.

–          For all practical purposes, NIIT is a debt free company, the Rs 112 Cr outstanding debt being literally insignificant in the larger context of things.

–          From a peak FII holding of 44% in 2007-08, currently FII`s hold only 14% stake in the company. The time of low FII holding is the best for a retail investor.

DISCLOSURE: I hold a substantial amount of shares in this company which was averaged at Rs 26/share.