Foreign acquisitions and tie-ups augur well for the IT education major. "How far is NIIT from your house?" went the punchline in the TV commercial of the IT learning solutions major""NIIT. With a presence in 32 countries, the company has been able to reach millions of households globally. Through boom and bust of the IT bubble and the proliferation of management education in India, NIIT has continued to spread further.
Meanwhile, its software development business was spun off into a separate entity""NIIT Technologies""in 2004. Going forward, the company is adopting a three-pronged strategy of partnerships, entry into new businesses and acquisitions to drive growth.
The acquisition of US-based IT education company"" Element K""has been the latest development in this direction. In the first quarter of FY07 NIIT's individual learning business grew 33 per cent y-o-y, while the corporate business grew 17 per cent with an order intake of $15.1 million.
For the June FY07 quarter, NIIT's consolidated net sales increased 10 per cent y-o-y to Rs 106.4 crore, while net profit grew 20 per cent to Rs 13.1 crore. Operating margin remains a little above 13 per cent. On trailing 12 months earnings per share, the NIIT stock trades at 24.75x. Excerpts from an interview with CEO, Vijay Thadani.
What are the expected benefits from the acquisition of Element K?
The acquisition makes NIIT and Element K, the leading global provider of comprehensive learning solutions. We now have more than 3,000 employees, over $250 million in revenue and a presence in 32 countries.
The acquisition gives us a global reach through a combined presence and established reputation in 32 countries, where customers will access global learning solutions with local support.
With operations and development staff around the world, customers will have access to the right balance of local and remote resources based on project requirements. They will also benefit from NIIT and Element K's flexibility, scale and quality processes.
What has been the revenue and margin growth of Element K over the past 5 years?
Element K's revenue in calendar year 2005 was in excess of $80 million with more than 90 per cent revenue coming from US. It has as its clients over 1,500 companies, including Microsoft, IBM, Adobe, Citi Group, Toyota, Accor and Cisco.
Your views on NIIT's revenues from its different businesses
The company's three businesses are individual, corporate and institutional. In the first category the company addresses the needs of individuals for pursuing careers in IT and this brought in 55 per cent of our revenues in FY06.
The corporate category caters to the requirement for custom content development, learning delivery and learning technology requirements for clients in the developed and developing world.
This business line generated 28 per cent of our revenues in FY06. The institutional category caters to the requirement for IT and IT-enabled education in schools. This business fetched the remaining 17 per cent revenues.
What is the share of foreign business revenues in total revenues and how do you expect this to change?
In FY06, international business contributed 48 per cent to the company's global systemwide revenues, while the remaining came from India. NIIT's China business grew by over 26 per cent, contributing 10 per cent to the company's systemwide revenues. We expect the biggest growth to continue to come from the US and China, in addition to a few other select geographies.
What are the benefits accruing from the tie-up with Sun Microsystems?
NIIT and Sun Microsystems have tied up to introduce specialised education and training programs on Sun technologies. Students emerging from these programmes will further grow the Java and Solaris developer communities in the country.
Through this alliance, NIIT will have access to the latest Sun technologies, tools, technical resources and curricula on the Java and Solaris platforms. Sun will enable NIIT to offer a range of customised programmes to a broad spectrum of students through NIIT's widespread network of IT education centres.
For undergraduates, as part of its efforts to enhance its curriculum, NIIT will now integrate the latest generation of the Sun Java platform into the GNIIT curriculum. Students will work with high-end visual development tools such as Java Studio Enterprise that focus on improving developer productivity and software quality.
For working professionals, the high end Sun curriculum will be integrated into NIIT's CATS (Curriculum for Advanced Technology Studies) offerings. This will allow professionals to get access to training on the latest platforms and tools.
What are your growth plans in India and abroad?
Our growth would occur on three planks, viz. partnerships, new businesses and inorganic growth. Growth through partnerships will come from relationships with technology companies, higher education partnerships with universities and other academic institutions and also channel expansion through partnerships in India as well as overseas.
In terms of new businesses, NIIT has identified three new areas of growth in the rapidly emerging services sector. First, we are going to set up an Institute for Finance, Banking & Insurance (IFBI) to prepare professionals, both at the entry level as well as in-service training for experienced professionals, for the fast growing BFSI industry.
Second, we are launching NIIT Imperia, centres for advanced learning, which will offer advanced training programmes in executive management and technology education in association with prestigious institutions using synchronous learning technology.
Third, we will launch NIIT Litmus, which will offer assessment and testing services for recruitment and proficiency testing initially focussing on the BPO and IT space.
The three new businesses will deploy our core competency in offering technology-based learning to capture the market opportunities offered by the growing services sector. On the inorganic front, we have already announced our acquisition of Element K.
What are your major growth drivers and what are the threats to your business?
We have a robust growth strategy around five dimensions. First, subject matter, which is IT and IT-assisted. Second, customer segment, where we cater to all segments with ages up to 16 served by Institutional business, 16-25 segment served by individual retail business and the in-service customer in higher age groups served by corporate business.
Third, geography focus will provide momentum. Fourth, value chains, through university affiliations. And fifth, mode of learning. This strategy will lead to accelerated growth. Education is a business which has high inertia but once the momentum catches on then it continues to build and that's something we have witnessed in many other parts of the world.
