By Tanu Sharma

India Ratings and Research (Ind-Ra) has affirmed NIIT Limited’s Long-Term Issuer Rating at ‘IND AA-’. The Outlook is Stable. A full list of rating actions is at the end of this commentary.

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).


RATING SENSITIVITIES

Positive: Future developments that could lead to a positive rating action include a significant improvement in the business profile resulting in a sustained improvement in the revenue and consolidated EBITDA margins coupled with continued low financial leverage. 

Negative: Future developments that could, individually or collectively, lead to a negative rating action include: 
- Consolidated net adjusted financial leverage being sustained above 2.75x due to any pressure on revenue and/or margins, and/or any significant debt-led capex/acquisitions 
- Further deterioration in the SNC, and/or underperformance in the CLG business affecting the improvement in consolidated revenue and EBITDA margins


COMPANY PROFILE

Established in 1981, NIIT, a global leader in skills and talent development, offers multi-disciplinary learning management and training delivery solutions to corporations, institutions, and individuals in over 40 countries. NIIT has three main lines of business across the globe - Corporate Learning Group, Skills and Careers Group, and School Learning Group. 

NIIT’s ratings:
- Long-Term Issuer Rating: affirmed at ‘IND AA-’; Outlook Stable
- INR1,000m fund-based working capital bank lines: affirmed at ‘IND AA-’/Stable/‘IND A1+’
- INR1600m non-fund-based working capital bank lines (reduced from INR1,860m): affirmed at ‘IND AA-’/Stable/‘IND A1+’
- INR340m commercial paper programme (carved out of the fund-based bank lines): affirmed at ‘IND A1+’
- INR700m long-term debt: affirmed at ‘IND AA-’/Stable
- INR400m short-term debt: affirmed at ‘IND A1+’



SOLICITATION DISCLOSURES

Additional 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. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Tanu Sharma

    Associate Director
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    0124 6687243

    Media Relation

    Mihir Mukherjee

    Manager Corporate Communications and Investor Relations
    +91 22 40356121