KEY RATING DRIVERS
Resilient Credit Profile: NIIT had a strong
balance sheet, robust liquidity and resilient credit profile in FY15 (year end
March). This was despite the continued weakening of its business risk profile
(mainly skills and careers (SNC; earlier individual learning) and one-off
exceptional losses of INR1.3bn on account of business
transformation. Ind-Ra has taken a consolidated view of NIIT’s business
and financials for the rating purpose.
Business Mix Transition: NIIT has undergone a change in its business mix with corporate learning group (CLG) taking up as the core business and replacing SNC which has continuously been declining since FY13. 51% of consolidated FY15 revenue and entire FY15 EBITDA were generated from CLG (23% yoy). SNC accounted for 34% of FY15 revenue (FY14: 42%). NIIT’s focus on IP-based and annuity-based revenue in the CLG vertical through managed training service contracts has helped it tide the headwinds in the SNC business. The planned exit from government contracts as well as from capex driven products in private schools is translating into softer revenue in the school learning solutions business (FY15: negative 9.1% yoy; FY14: negative 13.9% yoy). Consequently, consolidated revenue marginally grew 0.7% yoy to INR9,574m in FY15 (FY14: negative 1% yoy).
Business Restructuring Complete: In FY15, NIIT exited loss-making products and geographies, and reduced headcount in the SNC business to rationalise its high fixed cost structure. These measures are likely to support margins in the current year (9M16 EBITDA margin: 7.6%). However, the one-time exceptional costs of restructuring of INR1,363m impacted the FY15 performance. Excluding the impact of business transformation also, the EBITDA continued to decline to INR430m in FY15 (4.5% margin; FY14: 6.5% margin) due to the high fixed cost structure and falling revenue in the SNC business. The sustenance of growth and profitability of the CLG business is critical to NIIT’s ratings.
New Product Strategy: Ind-Ra recognises the new management’s strategy towards building a new ecosystem with a common delivery platform, lower overheads and increasing partnerships to achieve faster growth. However, the initiatives could take some time to deliver results which Ind-Ra will monitor. The ratings continue to reflect NIIT’s established brand name and its leading position in the IT training market. The company has a multi-product, multi-geography offerings portfolio spread across individuals, corporates, schools and other educational institutions.
Deterioration in Credit Metrics; Rebound Expected: Net adjusted leverage increased to 3.85x in FY15 (FY14: 2.34x), while net interest coverage decreased to 1.8x (2.4x), due to the stress on EBITDA. However, associate income of INR550m in FY15 from NIIT Technologies continued to support the earnings/cash flows. 9M16 EBITDA rebounded to INR579m (9M15: INR366m), which coupled with containment of overall debt is likely to normalise leverage for FY16. NIIT has negligible debt maturities in FY17. Ind-Ra expects NIIT’s credit metrics to become stable over the medium term, given low capex and cautious management of working capital cycle (FY15: negative 4 days, FY14: 19 days).
information is available at www.indiaratings.co.in. The ratings above were
solicited by, or on behalf of, the issuer, and therefore, India Ratings has
been compensated for the provision of the ratings.
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