Lower enrolments seen during Q2 a concern: NIIT

Reema: It is a bit of a disappointing set of earnings by the company, there is degrowth that we have seen in your revenues at the operational profits level as well as the net profit level, what impacted you and will things pick up in the next quarter?

A: I think in the overall sense I would agree with you that the results are showing a negative revenue growth minus 1 percent and of course even the profit has been lower but I think within that there are two-three very positive things. One is the corporate learning group has continued to show a very robust growth, which is 26 percent on a year-on-year (Y-o-Y) basis with margins of 12 percent and two new Managed Training Services (MTS) orders which would increase their business visibility and revenue visibility. So that is a robust performance by a business, which is nearly 48 percent of our total.

On the other hand in the individual learning business which is where we have had the disappointment, I think the consumer sentiment coming out of low IT hiring has taken its toll one more time because of lower enrolments. Though within that also, our strategy to move to beyond IT streams has helped a lot. Beyond IT enrolments have grown to 23 percent.

I think the most redeeming part is the confidence that is returning which is visible in our GNIIT enrolments. GNIIT enrolments have grown by 25 percent in our flagship centres. So I think there is definitely the strategy of cloud campus as well as managed training services that we adopted is showing results. With the confidence returning in the environment, which I am sure will be followed by actions as well and results as well, we should see better quarters in times to come.

Nigel: With regards to your margins, your EBITDA is a tad bit disappointing so will we see this kind of EBITDA margins for the next couple of quarters or do you think that you can turn it around in the next quarter itself?

A: It will depend a lot on how our individual business does because that is a high operating leverage business. We have education centres with fixed capacities and those capacities cannot be brought up and down, it depends on the enrolment’s growth so if the business confidence is supported with actual sentiment improvement and enrolments increase then margins will jump up very suddenly why because in a high operating leverage business, the return is also very quick.

Reema: Let us focus a bit on this individual learning segment (ILS) that is where you saw pressure. Can you tell us in Q2, what were the revenues for ILS, how much did it de-grow or grow by as well as what your margins were in Q2, give us a few numbers about ILS as well as what you can forecast for that segment going ahead?

A: The numbers in the individual segment were just in excess of Rs 100 crore, which was minus 20 percent around thereabouts over last year and while there is a slight improvement in the de-growth on a quarter-on-quarter (Q-o-Q) basis, I don’t think there are still positive signs, which are emerging. As I mentioned these are high operating leverage business. On a Q-o-Q basis, the margins were slightly better but that is more out of cost management and the time of the year issue.

The important thing, which has to be seen is the changes, which are taking place in the environment more specifically digital India and skills India and what we are going through is an exercise of business transformation as to how we can make a technology centric education both in IT and beyond IT streams to be made available. As you know the company also announced along with the business transformation a succession plan and I think that is the team which will drive this business transformation agenda.

Reema: You have indicated that ILS revenues are down about 20 percent this quarter but these things don’t change in a dime. So is it quite likely that individual learning solutions will show you de-growth even in Q3 as well as Q4 even if the quantum of de-growth reduces and secondly do you expect the quantum of de-growth to reduce in the coming two quarters at least?

A: All the pointers are in that direction because with a strong growth in GNIIT enrolments, which is our flagship product, which unfortunately is not yet visible within the results that growth of GNIIT programmes will enable us to open Q3 with a stronger order book, which therefore should contribute to a lower revenue de-growth as we go forward. Recovery of sentiment and recovery of IT hiring can contribute very significantly to the recovery of this business in the balanced part of the year.