NIIT Ltd., one of the leaders in the global corporate training business declared Q4FY17 results. The topline growth and margin performance was lower than our expectations as ramp down in one specific client impacted the corporate learning business and demonetization impacted the skill business.         

Strategic sourcing deal drove both Topline and bottomline growth above expectations

NIIT’s Q4FY17 overall revenue grew by 51% YoY to INR 361.5 cr against our expectation of 3% growth. Higher growth in Corporate Learning Group (CLG) was due to one large (~INR100 cr) strategic sourcing deal reported in Q4FY17. The company reported EBITDA of INR 17.2 cr; 30% growth YoY. EBITDA margin came at 4.5% against our expectation of 5.5% due to lower margin in the strategic sourcing business. Even after impacted by demonetization, for the full year of FY17, the company reported EBITDA of INR 76 cr which is similar to our expectations. Going forward, we remain bullish on the long term growth story of the company we would continue to experience both topline growth and margin improvement. Due to exit from complete from Government business, RoCE will continue to improve going forward.

Corporate Learning Group (CLG) – large strategic sourcing deal boosted growth

CLG reported 90% growth YoY  to INR 257.8 cr due to incremental ~INR 100 cr revenue from few strategic sourcing deals with couple of clients. Excluding the one off deal, revenue grew by 16% on CC basis in Q4FY7 which is similar to our expectations. Due to lower margin in the strategic sourcing business, overall CLG ERBITDA margin came down to 5% in quarter four; excluding the deal EBITDA margin was inline with our expectations of 11%. For the full year of FY17, on a like-to-like basis, CLG reported 18% CC term growth with 11% EBITDA margin, both of them similar to our expectations. The company reported revenue visibility of $ 249 mn at the end of FY17 which is highest since FY08. Higher revenue visibility, high order intake gives us confidence of higher growth CLG business going forward. Management is confident of maintaining 15% CC term growth in near to medium term.

Skill & Career Group (SCG) – Revived from demonetization impact

After affected by the cash crunch in Q3FY17, SCG business reported initial signs of recovery in the last quarter of previous financial year and grew by 3% YoY. EBITDA margin came at 1% in Q4FY17 which was similar to our expectations. For the full year of FY17, SCG business reported 3% de-growth YoY which was similar to our expectations. However, even after de-growth in topline, EBITDA margin in this segment improved to 2% in FY17 against 1% reported in FY16. Management is confident of growing SCG business at higher single digit in FY18 with improved EBITDA margin. Diginext, the digital initiatives of the company is growing at a healthy pace and is expected to maintain the growth momentum in near to medium term.

School Learning Group (SLG)- restructuring yielding result

In the school learning business, the management has taken a conscious call to exit the government business and capex heavy private businesses by FY19E. Due to this focused approach, revenue from the school business de-grew by 8% YoY in FY17. But, the focused IP driven business of the company grew by 29% YoY in FY17 and contributed 40% to the overall school business. RoCE in school business increased to 11% in FY17 against 2% on FY16. The company added 685 schools in the previous financial year, highest in the recent times.