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NIIT expects better margins in coming quarters

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will continue its focus on the non-linear business model, besides the travel and insurance verticals, so as to muster better margins in the coming quarters, according to Arvind Thakur, chief executive officer of the mid-cap IT services provider.

“We have started focusing on the non-linear business model from 2008-09 financial year,” he told Business Standard. “In the current fiscal, we expect at least 30 per cent business from the non-linear model.”

For long, the country’s IT firms have — as important employment generators —tried to adopt a business model where growth in revenues is not proportionally dependent on employee additions. This concept, known as the non-linear business model in IT parlance, helps companies to achieve efficiency.

Thakur said 1981-founded NIIT Technologies, which is one of the early adopters of the model, was now planning to move 30 per cent of its business to the non-linear platforms. The capital-headquartered company currently gets about 25 per cent of its revenues from such initiatives.

Earlier, NIIT was following the service delivery model, where the value proposition was cost arbitrage. “Now, we want to focus more on transformational deals,” the CEO said. “The idea is to change the approach towards our business. It is helping us to grow faster in our segment. There is a headroom for improvement in our operating margins.”

Within the non-linear business, the company offers managed services solutions, platform-based solutions, IP infrastructure services and cloud-based services.

In the quarter ended December 31, the operating margins went up 319 basis points to 18 per cent, compared to the year-ago period. In FY13 as well, the company is expected to have better operating margin than mid-caps like KPIT Cummins, Polaris, Geometric and others, according to analysts.

Kotak Securities notes that NIIT Technologies has, over the period of time, emerged as one of the best mid-cap companies.

“The non-linear business model for them has started paying rich dividends,” says Dipen Shah, head (fundamental research), Kotak Securities. “The recent deals and acquisitions also strengthened the company’s focus on non-linear model.”

According to him, the company has started offering services on their own platforms. “That’s where they are scoring points. And that is helping them to move more towards non-linear business,” he adds. Besides, it is also focussing on intellectual property (IP) assets.

Analysts further say the focused vertical approach is also helping NIIT Technologies gain growth momentum.

According to SPA Advisors, NIIT Tech has aggressively focused its attention on two main growth verticals -- travel & tourism and insurance & financial services. These two verticals have been contributing 90 per cent of the company’s incremental growth in the past six quarters.

Its recent deals and acquisitions are also focused on the two objectives -- selected verticals and IP assets. For example, in August, 2011, NIIT Technologies had acquired Spanish software services firm Proyecta Sistemas de Informacion SA for $7 million. Proyecta sharply focuses on two segments: travel and financial services. Almost 68 per cent of its revenues come from travel vertical.

NIIT Tech had, in July, also signed $85 million partnership agreement with Georgia-based Morris Communications. Under the terms of the agreement, the media company will transfer its key assets including IT infrastructure, people and applications landscape to NIIT.

On Friday, the shares of NIIT Technologies closed at Rs 239.50 -- up by 2.22 per cent -- at the Bombay Stock Exchange.

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