NIIT : Q1 23-24 Transcript of Investor Call

"NIIT Limited

Q1 FY24 Earnings Conference Call"

August 11, 2023

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MANAGEMENT: MR. RAJENDRA S PAWAR - EXECUTIVE CHAIRPERSON MR. VIJAY THADANI - MD & VICE CHAIRPERSON

MR. SAPNESH LALLA - NON-EXECUTIVEDIRECTOR MR. SANJEEV BANSAL - CFO

MR. KAPIL SAURABH - INVESTOR RELATIONS

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NIIT Limited

August 11, 2023

Moderator:Ladies and gentlemen, good day, and welcome to the NIIT Limited Q1 FY24 Earnings Conference Call. As a reminder, all participants' lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay Thadani, Managing Director, and Vice Chairperson of NIIT Limited, thank you, and over to you, sir.

Vijay Thadani:Thank you, and good afternoon. Ladies and gentlemen. Thank you very much for joining the call for briefing on quarter 1 as well as the status of the demerger. I do know it's a very busy time for you and for you have said this time for interaction with us, we fully appreciate and looking forward to an exciting discussion. I'll just give a quick update on demerger well, and I will say a little bit to give a quick read on the quarterly results, which have been available on the website. But I will go through a quick brief, and then I think we'll spend bulk of the time in answering questions that we may have. So first of all, -- this is the first quarter after NIIT demerged from NLSL therefore, it is only an NIIT limited I am sharing in this call.

I have with me Sapnesh Lalla, who was the CEO until 24th of May 23, after which he is the CEO of NIIT Learning Systems and continues to remain a very strong advisor and a member of NIIT Limited's Board. So, I will bank on this commentary in between whenever we require, while I also have Mr. P Rajendran one of the Co-Founders and the Joint Managing Director or NIIT Limited. Joining us in a minute is Mr. Rajendra Singh Pawar, who is now the Executive Chairperson of NIIT Limited. So NIIT Limited on 28th of January 2022.

Approved the reorganization of NIIT's 2 distinctive business lines, the Corporate Learning Group and the skills and Careers business into 2 independent companies, I will not go through the rationale, which we have discussed on a number of occasions, but I will just take you through a bunch of dates, which will be very necessary for those of you who are getting into NIIT Limited for first time or want a reminder of some of these dates.

So the plan was approved and announced on January 28, 2022, and idea was in 18 months' time, we should be able to list the company. The plan was that at the end of this demerger, every shareholder of NIIT will get 1 share of NLSL for every 1 share of NIIT that the person hold. Appointed of splitting the balance sheet was April 1, 2022. And then we went through the process of NCLT and a bunch of permissions from MCA as well as postal ballot, etcetera, with the end meeting of creditors and various things after which the order of NCLT came.

And the effective date of the demerger was from 24 May 2023, on which day the assets of the two companies were split across the 2 balance sheets and people were assigned to the independent companies, and that is what I referred to Sapnesh Lalla, the CEO of the combined entity and became the CEO of NIIT Learning Systems and an Executive Director of NIIT Learning Systems and continues to remain on Non-Executive Director on NIIT Limited.

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NIIT Limited

August 11, 2023

The Record Date on which, every shareholder of NIIT got an extra share of NLSL was 8th of June 2023, and the listing of NLSL stock on Bombay and National Stock Exchange, a very interesting and emotional moment for all of us, was on 8th of August 2023. So, at the end of which, NIIT Learning Systems Limited, which houses the corporate learning business, which is in managed training services, learning outsourcing in Western markets, predominantly is running the business as NIIT MTS -- while the Skills & Career business, which is focused on India as well as emerging economies around India, is focused on talent transformation. We help the workforce to cope with the rapidly changing environment and enlarge its ambit to a wider range of industry sectors.

So, in NIIT Limited, right now, there is a lot of work happening in stepping up innovation in immersive and hybrid models of learning. We did make some additions to our Board of Directors at the end of this reorganization. And while some of you are familiar with some of the independent directors we have, I particularly wanted to bring to your notice, 3 important people. One is Avani Davda, who was also the funding CEO of Tata Starbucks and currently a Strategic Advisor at Bain & Company. She has been as an Independent Director for a year, plus Mr. Ravindra Babu Garikipati who was the ex-Chief Technology Officer of Flipkart and now Independent Director with Axis Asset Management amongst others. And he comes with a rich background in using digital technology for conducting e-commerce as well as FinTech businesses. And lastly, we have Mr. Srikant Velamakani, founder, and CEO of Fractal AI, which is the India's first unicorn in AI and a prominent provider of artificial intelligence solutions to Fortune 500 companies, who joined the board during last quarter itself.

So, excited with the new journey that NIIT Limited has taken on. Undoubtedly, NIIT Limited has shrunk in size. That is because most of the legacy businesses that NIIT Limited was involved in have gone down during the COVID period and are now NIIT limited is rising with new business models and new interesting ways of delivering training and getting students to join NIIT courses.

And that process has just started. So to make sure that this massive transformation exercise is handled appropriately, while retaining the values and culture of the organization, while retaining the core competencies that the organization possesses, it was felt that the founders should roll up their sleeves and be back in action.

So, while many of us had started moving into non-executive or semi-non-executive roles, we are right now, all three of us back with a lead role on and into the company to ensure that we not just transition and transfer, but transition and transformation happens appropriately.

So, over the last four decades, while an NIIT has played a very important role in the technology sector, so we are told where we have been pivotal in building talent of the IT industry for the nation. Today, with accelerating transformation across industries, of which we noticed another transformation about 10, 15 years ago in banking. We have been very prominent and would say perhaps market leaders in BFSI training. Today, we are going further, marching further on that opportunity to recreate impact that we created in technology and BFSI and looking at multiple sectors beyond technology and BFSI industries.

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NIIT Limited

August 11, 2023

With this backdrop, we know that the times have been quite challenged in the country and more specifically since a large percentage of our business came from technology training and getting early career seekers on boarded onto IT services companies. We were severely affected in quarter four since the IT services companies, the global systems integrators, froze their hiring.

And in fact, it's one quarter in which we have had negative headcount, negative impact on headcount across IT services sector, which has happened at this scale after a very, very long time. So the company went through that during fourth quarter and coped with it with the agility that the moment required by taking some corrective actions which have begun to bear results.

And therefore, as we talk about quarter one, some of the effects of what those actions that we took are baked in. The numbers at numbers level, revenue was at INR 625 million rupees, which was up 4% quarter on quarter. I'm purposely not doing the year-on-year comparison because the year-on-year comparison is not very relevant in the current environment, given the fact that we got reset in a different orbit in the fourth quarter of last financial year.

So we are looking at the recovery phase and therefore looking at how the quarter-on-quarter growth is working and how it pans out as we go forward. Just to give you color on the kind of revenue, the revenue from early career segment, and we have been talking about that, we service two segments, early career and working professionals.

And on the other hand, in terms of sector, we look at Technology and BFSI & others, there are some sales and service excellence which are also built into that. So revenue from early careers was 330 million, which grew up 8% quarter on quarter, contribution was 53% versus 51% last quarter.

And that is an indicator of the fact that what had gone down has perhaps bottomed out and we are now beginning to see a little bit of hiring taking place in the coming, in this quarter, we felt it to the end of the quarter and maybe it will increase as we go forward. In the work pro segment, while it contributed 295 million, which was flat quarter on quarter, but I think the mix of what we were doing has changed.

The mix has been permanently shifted to advanced technology programs where we made significant investments and that's what allowed it to keep flat and I think in future we will see a benefit of growth coming out of the investment that we made. At the sector mix level, revenue from technology programs grew 6% and contributed 77% of the overall revenue.

And BFSI & other programs, while they are remaining flat quarter on quarter, what is not visible is the significant movement and mandates that we received end of the last quarter which will benefit us in coming quarters, and I will talk about that as we go forward.

Despite this challenging environment that quarter four and quarter three we had, we think we have arrested the decline in quarter one and arrested the decline that we witnessed in quarter four, very steep decline. I think we have arrested that and this quarter and quarter growth is a testimony of the fact that we have been able to cope with that downturn in a fairly fast manner.

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NIIT Limited

August 11, 2023

This was driven by three or four important actions that we took. One was an increased outreach. Since the large GSIs were not hiring, we decided we will go to Tier 2, Tier 3 global systems integrator, and we increased this outreach, which helped us get new logos. New logos at a lower volume, but a larger number of new logos were added.

The second was BFSI thrust, which we saw the beginnings of, led us to collecting some very strong mandates, which give us a very strong revenue in the coming three quarters, three to four quarters, these mandates will run for 15 to 18 months. The third was we went to our key customers and we said, how can we increase our wallet share?

And we did succeed in a few cases and made significant breakthroughs there. And lastly, the strong traction that we saw in advanced technology programs in areas such as artificial intelligence, generative AI, the digital architect programs where we have kind of created a premium position, engineering R&D which is an emerging field and fast-growing field in the country, and cybersecurity amongst others, which have been very interesting programs for working professionals.

During this quarter, RPS also went through a similar journey and has been on a recovery phase. And we got, in addition to everything else, got a strong recognition from three of our major OEM partners Microsoft, where we have been rated as one amongst the top three partners in the world. AWS, again, for our customer obsession initiative and Red Hat, where we are one amongst the three premium partners in the country.

We also implemented some very strong cost control measures which resulted in bringing down our negative EBITDA from 95 million to 64 million. What is not stated is that this business is undergoing transformation and is in an investment cycle. So, in the investment cycle for us to have managed our cost structure yet get the growth and has put ourselves on a trajectory of a profitable growth as we go forward will be a useful thing to have.

And in this, we, through these initiatives, we expect a strong ramp up in quarter two. We expect margins to get back to near breakeven in quarter two. And from then onwards, we expect to be in positive margin space as we ramp up. Just to complete the P&L, so I talked about revenue, I talked about EBITDA. Our net other income was 138 million, which includes the impact of a robust treasury income of 133 million, and that another benefit that strong cash reserves that the company has comes useful.

So overall our profit after tax was INR 22 million rupees as compared to a loss of 65 million in quarter one last year and the loss of 94 million in last quarter. During the quarter, NIIT also completed the purchase of the balance 10% of equity in RPS. And now therefore RPS is 100% fully owned subsidiary of NIIT Limited. Shareholders of RPS do have a small earnout for the balance period, which was disclosed before.

Our capex for the quarter was 68 million, and this is for the strong investment that we are making, on our platform and on our content in AI, in digital architect and the new programs that I talked to you about, as well as many other programs which are in the making and on the delivery infrastructure that we are using.

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