Expect stronger growth in second half of FY14: NIIT Tech
Pratibha Advani, CFO, NIIT Tech says the company has USD 263 million worth of executable orders over the next twelve months.
Software services exporter NIIT Technologies expects a pickup in the US demand environment and strong performance in other markets like Asia Pacific to drive growth in the current financial year. However, growth in Europe remains subdued, Pratibha Advani, CFO, told moneycontrol.com.
The company had reported a 22 percent year-on-year rise in its first quarter net profit at Rs 57 crore earlier this month, while revenue rose 15 percent YoY to Rs 537 crore.
Advani expects growth to pickup in the second half of the financial year, helped by new deal wins and USD 263 million worth of executable orders over the next twelve months.
Below is the transcript of Advani's interview with moneycontrol.com
Q: Give us a sense of how the overall demand environment is looking in FY14. Have you seen any pickup in discretionary spends by clients?
A. We continue to see a mixed performance across economies, with the US and much of the Asia-Pacific regions performing relatively better while the overhang of uncertainty persists in Europe and UK. There seems to be some recovery underway in the US at a somewhat moderate pace, as indicated by economic data as well as what we are experiencing on the ground. We saw that the US economy grew at an annual rate of 1.8 percent in the first quarter of 2013 and we also saw better than expected jobs data released earlier this month, pointing towards growing confidence in the sustained upturn in the US. Europe on the other hand continues to be soft.
The Asia-Pacific region, including India and China, remains in the growth mode and although there is a weakening of sentiment within the emerging markets the longer-term prospects remain encouraging for the region. Coming to some of the industry verticals of our focus, in Travel & Transport we are seeing improved sentiment with the airline industry body IATA projecting an increase in both passenger as well as cargo demand through 2013. In its latest outlook released last month IATA has slightly upgraded its forecast for industry profits in 2013. Given how integral technology is to an airline’s operations, we expect continued traction in this segment. IT spend in BFSI also seems to be growing; we have seen research firms like Celent and Gartner estimate that IT spends in the Insurance and in the banking & securities spaces are likely to grow by 3 percent or more globally during 2013.
Q: Your first quarter net profit declined 6 percent quarter-on-quarter. What were the key reasons for the dip and throw a light on margins as well.
A: Our operating profit for the quarter ended 30 June 2013 was Rs 78.2 crore, up 4.1 percent year-on-year but down sequentially. This was primarily on account of wage hikes during the quarter, reflected in a decline in our operating margin which now stands at 14.4 percent. Net profits also decreased as a result of lower operating profits but more significantly due to a sharp increase in the tax rate on account – (i)increase in the effective tax rate by 1.5 percent (ii) higher other income and (iii) higher dividend-related tax which we had to pay because of repatriation of dividend from our overseas subsidiary. This was a one-time opportunity available during the first quarter of FY2014 to offset taxes paid from dividend distribution tax payable in the current year. We expect effective tax rates to be lower going forward.
Q: Give us an outlook for the rest of the year? How are things looking in the domestic market as well as your key regions overseas?
A: As mentioned earlier, we see a mixed performance across economies, with the US and much of the Asia-Pacific regions, including the domestic market, performing relatively better while the overhang of uncertainty persists in Europe and UK. For the full year, we expect US and Asia-Pacific including India to lead our growth while Europe is likely to be muted.
Q: What are the key verticals that are doing well and you think will drive growth ahead?
A: Among our verticals, we expect healthy traction in Travel & Transportation and other traditional industry segments, while the BFSI (Banking, Financial Service and Insurance) vertical might be relatively slow. Given the strong order intake we have witnessed during the past couple of quarters, with fresh intake worth USD 145 million in Q1FY2014, the growth visibility is very robust and we anticipate that the second-half of FY2014 will demonstrate much stronger growth.
Q: Could you give update on the amount of deals that you are executing right now?
A: During the April-June 2013 quarter we acquired USD 145 million worth of fresh business. This includes renewals from travel and transport clients and a deal win to implement the airport operations control centre across 10 cities for the Airport Authority of India which is a USD 60 million engagement. We also added 5 new customers during this quarter across geographies and interestingly these have all been within the travel and transport space, further supporting the traction that we have in this particular industry segment. Our orders executable over the next 12 months are at USD 263 million, providing healthy revenue visibility.
Q: The US immigration bill is a big overhang on the IT sector. What’s your opinion? Do you think that companies, including yours, will have to change the business model if the bill is passed in the current form?
A: This is a complex bill and will in all likelihood undergo a lot of debate, discussion, and even changes. Earlier this month, there have been reports of the House of Representatives suggesting alternatives or substantial modifications. Irrespective of what form this bill takes, one needs to keep in mind that NIIT Technologies is relatively better positioned for a couple of reasons. Firstly, our exposure to the US geography is much lesser, given our balanced geographical mix. Secondly, our staff composition places us favourably and close to the 50% threshold envisaged in the bill.