NIIT Technologies: Charting a new course

Value-added services, focus on domestic market to keep the IT company on the growth track.

Even as the information technology (IT) industry looks set to clock a better performance this year on improving demand, attrition and higher wage bills may well spoil this party. The brunt of this will be felt more by mid-cap companies in the sector, unless a company has differentiated strategy and value proposition as NIIT Technologies (NTL) does. NTL, a mid-sized IT company, is following a two-pronged approach to deal with some of these threats.

For one, it has built a domain expertise in niche industry verticals like insurance, travel, manufacturing and retail, which will result in strong business visibility in the coming quarters. It was named the No. 1 service provider in the travel industry for two years (2008 and 2009) in a row by Datamonitor Black Book of Outsourcing. Its cargo handling solution too has seen some success across Southeast Asia. The company also enjoys a good geographical mix revenues from North America, Europe and Asia Pacific.

Secondly, the company has built differentiated services in focus verticals. NTL offers application development management, cloud computing packaged implementation and BPO services. At present, the company derives 27 per cent revenues from managed services and IP-asset based services, rather than the commoditisable time and material kind of pricing model. Over the next five years, Gartner expects companies to cumulatively spend $112 billion on software, platform and infrastructure as a service. By 2012, a fifth of the businesses will not own any IT assets.

NTL’s non-linear revenues have grown much faster than the company’s overall growth. The company has tied up with Hitachi Information Systems, Japan, to offer cloud computing services and with ESRI Inc for geospatial information systems (GIS) services. Sharekhan believes that non-linear initiatives could be a game changer for the company.

Apart from its focus on value-added services, the company is trying to tap the booming domestic IT market. It was recently awarded the “Intranet Prahari” project for the Border Security Force valued at Rs 228 crore.

Excluding the BSF deal, India’s share in its revenues has grown to 16 per cent from eight per cent two years ago.

The company is expected to clock Rs 1,226 crore revenue and Rs 177 crore net profit in the current fiancial year.

Given that it’s a mid-sized company, it will continue to be vulnerable to some of the risks that the sector faces.