NIITLTDNSEQ2 FY 2022-23November 2, 2022

NIIT Limited

7,872words
101turns
11analyst exchanges
3executives
Management on call
Vijay Thadani
MANAGING DIRECTOR & VICE CHAIRMAN, NIIT LIMITED
Sapnesh Lalla
CHIEF EXECUTIVE OFFICER & EXECUTIVE DIRECTOR, NIIT LIMITED
Kapil Saurabh
INVESTOR RELATIONS & M&A NIIT LIMITED
Key numbers — 40 extracted
rs,
like to make is that despite turbulent macro environment, all our businesses, SNC Skills and Careers, including RPS Consulting that we had acquired last year, as well as CLG have achieved double-digit
100%
he business continue to add new customers and maintain this velocity of customer acquisitions and 100% renewal rates. So, there is a great potential for the company in future in both businesses, and w
INR 3,922 million
verall and then get into each business respectively. Our revenue stood at INR 3,922 million. This was up 24% year-on-year and was down 3% on a Q-o-Q basis, primarily due to a steeper-than-e
24%
usiness respectively. Our revenue stood at INR 3,922 million. This was up 24% year-on-year and was down 3% on a Q-o-Q basis, primarily due to a steeper-than-expected compressi
3%
Our revenue stood at INR 3,922 million. This was up 24% year-on-year and was down 3% on a Q-o-Q basis, primarily due to a steeper-than-expected compression in a large customer at CLG
INR 560 million
ll cover this detail when I discuss the corporate learning business with you. The EBITDA stood at INR 560 million. The EBITDA margin at 14%. The EBITDA includes impact of wage inflation effective July 1, a steep
14%
e corporate learning business with you. The EBITDA stood at INR 560 million. The EBITDA margin at 14%. The EBITDA includes impact of wage inflation effective July 1, a steeper-than-expected compressi
INR 103 million
cally with respect to our business in CLG as well as in SNC. The net other income showed was at INR 103 million. This includes treasury income of 137 million and exceptional expense of INR 41 million related t
137 million
l as in SNC. The net other income showed was at INR 103 million. This includes treasury income of 137 million and exceptional expense of INR 41 million related to various strategic initiatives that we have a
INR 41 million
d was at INR 103 million. This includes treasury income of 137 million and exceptional expense of INR 41 million related to various strategic initiatives that we have at play at this time. The tax was at INR 96
INR 96 million
illion related to various strategic initiatives that we have at play at this time. The tax was at INR 96 million for the quarter. The profit after tax was at 396 million, resulting in an EPS of 2.9. In the Co
396 million
at play at this time. The tax was at INR 96 million for the quarter. The profit after tax was at 396 million, resulting in an EPS of 2.9. In the Corporate Learning business, the revenue was at INR 3,004 mil
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Guidance — 20 items
Sapnesh Lalla
opening
“We expect the pace of consumption to pick up as the uncertainty starts to subside.”
Sapnesh Lalla
opening
“We hope these investments or actually, we expect these investments would help us increase our wallet share, as well as penetrate new markets and customer segments as we look ahead.”
Sapnesh Lalla
opening
“For the full year, we expect the margins to be a shade below 20% for the year.”
Sapnesh Lalla
opening
“We expect growth in CLG to pick up in H2.”
Sapnesh Lalla
opening
“We expect to remain on track to deliver approximate or a margin of a shade below 20% for CLG and a small EBITDA profit for the SNC business for the whole year.”
Vijay Thadani
opening
“So, the project is on schedule, and we do hope that based on this, the second motion hearing will be filed.”
Vijay Thadani
opening
“And therefore, in one of the quarters next year, in the next financial year, we hope to complete the reorganization exercise, which is a demerger of NIIT Limited into NIIT Limited and NIIT Learning Services.”
Vijay Thadani
opening
“If there are further questions, we will be very happy to answer.”
Sapnesh Lalla
qa
“But this year, given the uncertainty in the environment, we are not sure whether organizations will be allowed to spend their budgets or will they be asked to return their budgets.”
Sapnesh Lalla
qa
“But I am not sure if the impact of the typical budget flush will be as significant as we have seen in the past.”
Risks & concerns — 15 flagged
As indicated in the Pre-Quarter 2 and during Earnings Update, there was steeper than anticipated impact of environment on CLG business, which did impact our Q-o-Q growth, and to that extent, Sapnesh would explain that details.
— Vijay Thadani
The EBITDA includes impact of wage inflation effective July 1, a steeper-than-expected compression in some customers with CLG, product mix changes, as well as a pickup in travel and premises cost this quarter, which we had anticipated earlier.
— Sapnesh Lalla
This includes the impact of annual variable compensation that gets paid in the second quarter.
— Sapnesh Lalla
And secondly, we have been given to understand in the past that H2 sees impact of budget flush in terms of the clients and so keeping that flush perspective as well, how are we treating H2?
— Baidik Sarkar
But I am not sure if the impact of the typical budget flush will be as significant as we have seen in the past.
— Sapnesh Lalla
And importantly, is this impact of the steep run-up in order book that we witnessed in H2 of last year?
— Baidik Sarkar
And sir, on your Skills and Career business segment, if I look at the revenue excluding RPS, that number shows decline both from a Q-on-Q and a Y-o-Y perspective.
— Shradha
And I am rather pleased with our management that, you know, we are able to wait through such difficult times with such finesse.
— Siddharth Basi
because as you said, we are already feeling the impact of the recession because it's already there in the company's mind.
— Siddharth Basi
Of course, in an uncertain market, the criteria can change.
— Sapnesh Lalla
And secondly, sir, what is the impact of dollar appreciation on our EBITDA because see, dollar has gone up to 82.
— Siddharth Basi
Then you had a second question with respect to impact of foreign exchange.
— Sapnesh Lalla
We have had some impact of foreign exchange on our revenues.
— Sapnesh Lalla
We had an impact of 4% of foreign exchange on the revenues.
— Sapnesh Lalla
So, what as I see at in these uncertain times we are investing and purely making a very good foundational base.
— Darshil Jhaveri
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Q&A — 11 exchanges
Q
Sapnesh, you did allude to this in your opening remarks with regard to the rundown of the CLG business. The understanding was that just ought to come back in Q3. If you just flesh out the answer a little bit more, are we on full track for recovery? And secondly, we have been given to understand in the past that H2 sees impact of budget flush in terms of the clients and so keeping that flush perspective as well, how are we treating H2?
Sapnesh Lalla
So, there was a part of your question which I couldn't completely figure out, but let me try to restate what you said and see if that's what you were looking for. I think what you wanted to know was how is H2 looking and in light of the budget flush that we have had in the past, specifically in Q3, most years, is H2 looking any better than H1? Is that what your question was? That's right. Okay. So, while there is a budget flush at the end of December with most of our customers, specifically most customers in North America. But this year, given the uncertainty in the environment, we are not sur
Q
So, I was talking about expectations of margins in Q3 for CLG business. So, why are we expecting flattish margins despite the fact that salary hike impact has already baked into Q2 numbers? And you are also talking about Q-on-Q growth. So, shouldn't margins look upwards in Q3?
Sapnesh Lalla
I don't get paid salaries in Q2 alone. I get paid salaries in Q3 also. But that having been said, the softness in the macro environment and the investments that we have to create growth in spite of the softness in the macro environment will keep the margins a little flat for the next couple of quarters. But after that, we should start seeing growth in margins as well. And also, can you highlight the kind of investments of close to Rs. 41 million that we did? What are the strategic initiatives that we undertook? And what are the kind of results you are looking at from these initiatives? Like we
Q
Firstly, congratulations on the numbers. One was a little worried when one read the mid-quarter update. But I think in a tough business environment, we have done a good job. And I am rather pleased with our management that, you know, we are able to wait through such difficult times with such finesse. So, firstly, congratulations on that.
Sapnesh Lalla
Well, thank you. I appreciate your kindness. So, my first question would be with regard to, you know, this is like dichotomy that I am not able to understand. So, whenever the Federal Reserve Chairman speaks, he talks about a tight labor market. He talks about the fact that there are enough people still employed in the labor force. The hiring is still strong. In such an environment, then shouldn't our growth actually be higher because while more people are being onboarded in the U.S. economy in jobs, therefore, they would still need training. So, why is it that we are feeling a sort of lack of
Q
So, most of my questions have been answered, and the management did a wonderful job at answering all the detailed questions. So, my question was a bit more about our long-term approach. So, what as I see at in these uncertain times we are investing and purely making a very good foundational base. So, what do we see, what is our aim for maybe next 3 years FY25 or something that we could share so that, you know, we can get a good favor of our long term? Because I think we will be able to achieve a lot of good growth when the environment is in our favor.
Sapnesh Lalla
You are very right. I think two quarters ago, we created a goal for ourselves for the CLG business to reach $450 million by FY27 and a 5-year plan for the SNC business to hit 1,200 crores. And we are staying true to that plan. While I know that the soft macroeconomic situation is not going to allow us to achieve as much organically as we had expected, but the strong balance sheet that we have, we will use that balance sheet strength to be able to achieve that growth. Just in the interest of time, we are at 4:10, and I think there are a number of people asking questions. Just if you can request
Q
So, I just wanted to understand the sequential dip in the CLG business that we are seeing. Will that be primarily attributable to the large client that you called out in your opening remarks or?
Sapnesh Lalla
Mostly right, that's exactly how we have guided. But there is some compression with our existing customers also. So, it's a combination of a significant compression in a large customer and some compression with our existing customers owing to the current economic situation. So, ex of that large customer also, there would have been some decline on a substantial basis. Is that understanding correct? No. I think, like I pointed out, we saw compression in some of our existing customers. We saw a significant compression in one customer, as we have pointed out. And that's really the core to the Q-o-
Q
Just one thing. The client addition has been very strong for us. Is there some metrics or, you know, if you can share ex of the ramp down of a large account, how the growth has been? And I mean, the majority of last 12 months addition in the customers, how could, I mean, if you can share something about how these clients will ramp up? And is there is some slowness in the ramp-up of these accounts given the macroeconomic situation?
Sapnesh Lalla
So, I think like you pointed out, we have had strong new contract additions. The velocity is good. We have been adding at about three new customers each quarter. Like I pointed out, answering the question of a previous caller, while we had significant compression with one of our customers, we did see a number of our other customers hitting COVID levels, which had improved in the previous year. So, a number of customers had increased their consumption in FY22, but they are trending towards COVID levels of training consumption given the uncertainty and deferment and avoidance with respect to dis
Q
Sir, just wanted to know the acquisition of KNOLSKAPE that we did. It appears like we will be acquiring 5.88% in that. What is our nature of investment in this company? It does not look to be strategic given the small stake that we have post conversion. So, is it more of a financial investment? Or how are we going to use this as a synergistic way to our growth? And second is on the consideration that we gave for this company. Based on trailing revenue, it appears like 7x of sales multiple that we would pay. So, is that like a fast growth rate that we are seeing on sales that that's why we had
Sapnesh Lalla
So, I would want to point out first that it's not an acquisition. It is a strategic investment. Second, it is a fast-growth company. Third, their products have synergy with the way our customers consume training. They are simulation oriented. It gives us the ability to bring their portfolio of products and combine that portfolio with our managed services way of offering training in a managed training services form. So, it is synergistic, and that's the reason for the investment. And sir, the second was on this MTS customer. Last year that we had 16 customer additions to our MTS end. H1, we alr
Q
So, this is more of a bookkeeping question. You have 3,300 staff. So, what would be the approximate breakup of the staff, I mean, in terms of what kind of work they are doing?
Sapnesh Lalla
We are a training company. So, our staff includes people who create training materials, people who deliver training, which is instructors, and people who administer and manage training programs. That's really a large majority of our staff. And sales and marketing would be? Yes. I mean, sales and marketing is a much smaller percentage. But the large bulk of our staff are around creation of training materials, delivering of training and management of, large scale management offering. Because your physical infrastructure has closed down. So, I was just wondering, I mean, why do you require so man
Q
Just one clarification. So, we have already pointed out that our CLG business is more towards the regulatory side of the service. So, hiring freeze by a lot of these companies globally, is that impacting us? Will that affect us? Or how should we look at it?
Sapnesh Lalla
Here's how I would say it. About 35% of our business comes from technology and telecom companies. And the hiring freezes are predominantly or at least what we have heard so far are predominantly from the tech sector in the United States. And a lot of what we do is to teach technical skills to employees of tech companies or telecom companies. And if they hire less, then it does impact consumption of training. And I mean, I don't know whether we can do it or not, but can you discuss, I mean, if you can just break down what part would be the reskilling part and what would be the hiring part? Is t
Q
Just wanted to understand the way our guidance and performance have played out over last several quarters. We were kind of very conservative in the previous fiscal while we continue to do better both on growth and margin. And now it's kind of with worsening macro moving in the other direction where we are cutting back to that in terms of guidance for growth and margin. So, now when we read your outlook at this point, it's kind of becoming a little confusing from the sense that we were very conservative, and now it seems like we were underestimating the pain. So, in those light, you know, what
Sapnesh Lalla
Look, our goal is to be as transparent as we can be with you. Our goal is not to misguide you. So, you should look at it as a projection that we see is viable. And in terms of the growth and profitability of the CLG business, is there any way that you could say that okay, now with the kind of the business growth and the kind of a cost base and also the mix of virtual versus on-site delivery of the training, what are the ideal growth rate on profitability that one should anticipate in this business on a more structural basis? Even if you give a band, I think that is also okay. See, I think from
Q
If there are no more questions, thank you very much for your time and all the questions that you asked. As I have mentioned before, each of your questions give us an opportunity to think. So, these are very educated sessions for us. And certainly, we take your suggestions as well as comments very seriously. Sapnesh alluded to that, said it clearly, I am repeating it. Our purpose is to give you a lay of the land as we see it. And there are uncertainties in the environment. Within that uncertainty for us to be able to say what we want to say is based on facts and figures that are available to us
Management
Speaking time
Sapnesh Lalla
42
Moderator
13
Sameer Dosani
9
Vijay Thadani
6
Baidik Sarkar
6
Siddharth Basi
6
Jay Daniel
5
Shradha
4
Rahul Jain
4
Nemish Shah
3
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Opening remarks
Vijay Thadani
Thank you, and good afternoon to each one of you, and good morning or good evening, as the case maybe depending on where you are in the world. First of all, thank you very much for giving us your time to listen to us and the progress of NIIT over the last quarter. We are extremely grateful to you for your interest. And I do know that you have many other meetings to attend. So, we will keep our briefing brief and leave more time for your questions. The agenda of today's call is to discuss the business performance for the quarter ending September 30, 2022. And the only opening comment that I would like to make is that despite turbulent macro environment, all our businesses, SNC Skills and Careers, including RPS Consulting that we had acquired last year, as well as CLG have achieved double-digit growth on a year-on-year basis. As indicated in the Pre-Quarter 2 and during Earnings Update, there was steeper than anticipated impact of environment on CLG business, which did impact our Q-o-Q g
Sapnesh Lalla
Thanks, Vijay, and thanks, everyone, for joining. Like Vijay pointed out, we appreciate your time, and we know how busy you are and therefore, really, really appreciate your presence. To provide you with the highlights, I'll start with NIIT overall and then get into each business respectively. Our revenue stood at INR 3,922 million. This was up 24% year-on-year and was down 3% on a Q-o-Q basis, primarily due to a steeper-than-expected compression in a large customer at CLG. I will cover this detail when I discuss the corporate learning business with you. The EBITDA stood at INR 560 million. The EBITDA margin at 14%. The EBITDA includes impact of wage inflation effective July 1, a steeper-than-expected compression in some customers with CLG, product mix changes, as well as a pickup in travel and premises cost this quarter, which we had anticipated earlier. We also continued to make some acceleration in the growth investments that we started making earlier this year, specifically with re
Vijay Thadani
Okay. Thanks, Sapnesh. A very quick brief on the reorganization. As mentioned in the last time, we had filed an application with NCLT. And NCLT also had the first motion hearing. And based on that, the shareholder and creditors' meeting is scheduled for November 15, for which I think the invite was sent in October and the e-voting will open from November 11 to 14. So, the project is on schedule, and we do hope that based on this, the second motion hearing will be filed. And therefore, in one of the quarters next year, in the next financial year, we hope to complete the reorganization exercise, which is a demerger of NIIT Limited into NIIT Limited and NIIT Learning Services. So, I'll stop here. If there are further questions, we will be very happy to answer. Other than that, we have covered all the grounds. So, now we will open it for Q&A. Operator?
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