's corporate learning vertical grew by 23 percent year-on-year in the second quarter of FY17, more than the company had guided for. Rahul Patwardhan, Chief Executive Officer of NIIT does not expect similar kind of growth going ahead.
But he adds that FY17's corporate learning growth could better the 15 percent guidance given earlier by the management. He maintains FY17 corporate learning operating margin guidance of 12 percent.
The net debt fell to Rs 91 crore, an improvement by 30 percent. The decline was due to substantial payments from government schools. Patwardhan expects debt to remain on a downward trend for the next two quarters.
Below is the verbatim transcript of Rahul Patwardhan's interview to Reema Tendulkar and Ekta Batra on CNBC-TV18.
Reema: In your press conference, you spoke about two deals having slipped from Q2 into Q3 and you referred to an additional revenue visibility of USD 15 million, could you elaborate a little more on that?
Yes, corporate business has done well in this quarter. We had a 23 percent growth over the same quarter last year, which is a bit more than what we had indicated. I want to emphasize it is a slightly higher performance for one quarter. Don’t expect 23 percent every quarter going forward.
We had a significant extension and expansion of one contract during the quarter and a couple of customers had specifically large demand and that is what contributed 23 percent in this quarter. We have a number of deals in the pipeline. I had hoped that we will close quite a few of them in this quarter but the process of contract signing while we had verbal agreements, the final inking of documents have happened after the quarter got over. So two deals have been closed, one with a very large global manufacturing company and other with a very large global telecom equipment manufacturer and we have many more deals in the pipeline, pipeline is very strong right now. Ekta: So the revenue visibility right now is 15 million in terms of fresh orders? A:
The revenue visibility is at 219 million -- that we have going forward. As against to 203 million or so that we had at the end of the last quarter. Ekta: I just wanted to touch upon your debt figures because that stood out, you are down around 30 percent to Rs 91-92 crore, what is the plan in terms of further debt reduction and what might the internal targets be and if you do have those plans, how exactly are you planning to achieve it and by when? A:
There are various reasons why the debt has gone down. One is that our profits have improved. That obviously has a direct impact. Collections we have been working extremely hard on our working capital management and our operating cycle reduction and that has paid dividends. Most important -- we have had substantial payments that have come in from government school receivables during the quarter. Again here, there were couple of payments that have come in substantial after the quarter got over. So if we had been luckier, it could have been even a lower number. Looking forward, we expect this debt to reduce further towards the end of the next two quarters not very substantially but there will be a continuous decline over the next two quarters. Reema: Could you tell us what your FY17 guidance is when we last spoke to you said corporate learning business will have a 15 percent revenue growth, 12 percent margins and on skills you have told us about a 5 percent growth. What would be the new guidance post the first half of the year? A:
If you were to look at the impact of that guidance in terms of the overall NIIT revenue growth and earnings before interest, taxes, depreciation, and amortisation (EBITDA) we are holding very much firm to the overall numbers.
We are seeing stronger numbers on the corporate business and slightly weaker numbers on the skills and careers, but on an overall basis we will deliver the overall revenue growth and EBITDA that would have been computed based on an opening guidance. Reema: What would be the guidance for your business on the whole as well as on individual segments if you could give us some numbers? A:
We have seen 23 percent growth in this quarter, so we would expect few percentages higher on the CLG business, EBITDA will remain roughly the same because we are continuing to invest in growth development. The skills and careers business could be a couple of percentages points lower, but the EBITDA will remain at the same mid single digit EBITDA that we had indicated, so EBITDA we had done really well on the skills and careers business.
On growth it has been a little bit less strong as we had expected so far. For full year the entire NIIT performance will be at the level that we had indicated. Ekta: How much is government as a percentage of sales now considering that you are consciously reducing your exposure to government as well as receivables outstanding? A:
Our overall receivables outstanding from government is still the majority, but we are making good progress as I mentioned and we expect that to continue over the next couple of quarters. In fact, we have received another Rs 15 crore in the first week of this quarter which itself would make a big improvement in the net debt. The government business as a revenue is very small. It is only the government’s school business and a very small part of our skill business. The government school business we have only two contracts left which is the Chhattisgarh state contract and the Assam state contract. Maharashtra just got over last quarter and we have received payments for Maharashtra, so right now our risk exposure and BR exposure to government is on the decline, not on the increase. Reema: Very quickly if you could tell us about the business you acquired a tech start-up Perceptron Learning Solutions the cash payout, the revenues of this particular entity, how much can it contribute? A:
It is not a very large company. It is a company which has two things that were of particular interest to us or rather 3 I would say; one is that they have invested in some very interesting technology which is based on learning analytics and semantic analysis in a platform and these are some of the things that we ourselves we are planning to build in our roadmap for the NIIT TV and the training.com platform.
By acquiring this company we will cut short the cycle time for building that IP by a year and that is a very significant reduction in the cycle time; apart from that some excellent talent in the digital technologies that we will be working a lot more with as we go forward and that talent is not only helping us in our own platform initiatives, but actually playing a very important role in the definition of the design of our curriculum for Stack Route, in fact people from that company were working with us for the last 1 year already and also the curriculum for DigiNxt.
The third aspect is that this company works with EkStep, which is a company setup Nandan Nilekani and a number of other people from the IT sector, focussed on social initiatives for school children and the platforms been deployed there and there is a lot of experience on learning that is coming out of that and we get the benefit of that too.
I think overall this will help us in make a significant movement forward in the technology base of our platform for delivering education in the corporate sector, the school sector and the retail sector small investment just about Rs 2.5 crore so it is not a big investment about 25 people.