Revenue from Morris to rise slightly in next quarter: NIIT

In an interview to CNBC-TV18 Arvind Thakur, CEO, NIIT Technology spoke about fresh orders secured from one of their older client Morris Communications, a media conglomerate in the US.

"This new engagement has a value of USD 20 million. We are creating a platform to help them with their digital services," he elaborated. Thakur expects improvement in revenues from Morris in the next quarter. Below is the edited transcript of his interview to CNBC-TV18 Q: Have you got something more from Morris Communications recently? A: Right now we are in the process of executing that engagement. Morris is a very strategic client of ours, which is a media conglomerate in the US. Last year we had got into a strategic partnership with them. We took over all their assets and have been running their infrastructure and their IT platforms in a managed services mode. That was for their basic ad services, back office services and so on. This new engagement has a value of USD 20 million. We are creating a platform to help them with their digital services. Q: What does that mean in terms of revenues? Does it become higher in the current or next quarter? A: Yes, it will become a little higher from the next quarter. As we will start delivering on this particular contract, we may see an improvement in revenues from Morris. Q: How much improvement in revenues from Morris do you see? A: The original contract was USD 85 million. So, to that extent there is another USD 20 million. In that proportion you will start seeing improvement in revenues. Q: You have earlier indicated that margins may be under slight pressure as you execute the Morris contract because there would be more onsite work in the near term. Do you hold on to that view?  What are the margin trends you are observing across other projects as well? A: Overall, for the company last quarter we delivered 17 percent operating margins. That is the same as last year. In FY11-12, we were at 17 percent operating margins. In strategic engagement like this, one takes over the complete assets and a good number of people from the customer you incur a lot of onsite cost. Gradually, over a period of time when you start off-shoring a lot of work, your margins starts improving. We have seen that improvement in the last quarter. Now you have got this larger engagement of USD 20 million again. It will have a large onsite component first and then over a period of time we will see margins improving on this engagement as well. _PAGEBREAK_ Q: Are you observing weak trends across BFSI in your operating space? A: BFS is an area which is relatively soft as compared to the other industry segments that we have been focusing on. Last year 40 percent of our revenues used to come from BFS and 33 percent from travel and transport. In the last quarter, it was exactly the reverse, 42 percent of our revenues came from travel and 33 percent from BFS. So, what we are observing is that the large financial institutions are under pressure. That is mainly due to the macros that we see in the environment. The interesting thing is that there is an opportunity with the tier II financial services institutions, most of which are first time outsourcers. So, that’s a market that we are now focused on and targeting to grow our BFS business. Q: How are you looking at the BFS business this quarter and the next, compared to the previous quarter?  Can u give some numbers in terms of rate of growth of business as well as margins in Geographic information system (GIS) and in the travel segment? A: I don’t have the numbers per say, but 42 percent of our last quarter revenues came from travel and transport. We are at a run rate of Rs 500 crore a quarter. A quick calculation will be about Rs 200 crore from the travel space and 33 percent from BFS which will be around Rs 150 crore. In terms of margins, I don’t think there is a difference, with respect to these two segments. Margins in our context have been under stress in two areas of our business. One is the GIS business, where normally we have very-very healthy margins. However, noticing from our numbers last quarter, it dipped down to only 1 percent operating margin. That’s because of some large government program, we are involved with. The most significant is being the Accelerated Power Development and Reforms Program (APDRP). It is nearing completion but requires a little more effort to conclude. Therefore much higher resources are required to be deployed to conclude that program. Also read: Infosys named a leader in IDC MarketScape Q: What have you seen so far about the order inflow in this quarter? What are you expecting to end the quarter with? A: Looking at intake, it has been more or less steady between USD 80-95 million per quarter. That’s a very good sign given that the environment continues to be quite stressed. So, having a steady intake every quarter is a good sign for business and for the company. We have been seeing our top clients grow and continuous intake of fresh business which is another good sign. So, as long as we are maintaining a steady intake it is healthy. If one looks at our orders executable over the next 12 months, it stands at USD 253 million. Q: You had a few large clients you were in discussions with, any of that possibly fructifying in this quarter? A: I will talk about it when it happens. However, in every quarter we have seen closure of a large engagement. In the beginning of our discussion, Morris was a large engagement that we did in the last quarter. Q: There was a fear that future contracts will come with lower billings, is that a worry for you? A: Not really because if you look at engagements, they are moving more from time and material basis to output or fixed bid basis. The effort is required to be executed. The productivity is what determines the margins in the business going forward. So, for the industry as a whole including value proposition, it is shifting very rapidly from the earlier proposition. This was of cost arbitrage to delivering business value. So, the mindset is changing and therefore contracting, bidding and pricing is also changing.