By Ankur Rustagi

India Ratings and Research (Ind-Ra) has affirmed NIIT Limited’s Long-Term Issuer Rating at ‘IND AA-’. The Outlook is Stable. The instrument-wise rating actions are as follows.

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating/Outlook

Rating Action

Fund-based limits

-

-

-

INR414 (reduced from INR614)

IND AA-/Stable/IND A1+

Affirmed

Non-fund-based limits

-

-

-

INR368 (reduced from INR668)

IND AA-/Stable/IND A1+

Affirmed

Commercial paper (carved out of fund-based bank lines)

-

-

up to 365 days

INR340

IND A1+

Affirmed

Short-term debt

-

-

-

INR200 (reduced from INR400)

IND A1+

Affirmed

Proposed non-fund-based bank limits*

-

-

-

INR700 (reduced from INR1,100)

Provisional IND AA-/Stable/Provisional IND A1+

Affirmed

Proposed long-term debt*

-

-

-

INR400

Provisional IND AA-/Stable

Assigned

* The ratings are provisional and shall be confirmed upon the sanction and execution of the loan documents for the above facilities by NIIT to the satisfaction of Ind-Ra.

KEY RATING DRIVERS

Sustained Comfortable Credit Profile: The ratings continue to reflect NIIT’s comfortable credit profile with adjusted net leverage (adjusted net debt/EBITDA) improving to 1.65x in FY18 (FY17: 1.82x) and interest coverage (EBITDA/gross interest expense) enhancing to 3.85x (2.61x) owing to an increase in operating margins to 8.8% (8.0%) and a reduction in interest expense to INR194 million (INR258 million). The working capital cycle improved to negative 3 days in FY18 (FY17: 23 days) on account of the collection of old receivables and an increase in payable days. The improvement in working capital management, exit from capex-driven business models and focus on asset-light businesses has led to an improvement in the credit profile. In January 2018, NIIT acquired Eagle International Institute Inc. through its wholly owned subsidiary NIIT (USA) Inc for USD8.1 million. The acquisition will not have any major impact on NIIT’s credit profile, as the payment is staggered over five years and will be funded primarily through internal accruals. An associate income of INR660.9 million in FY18 (FY17: INR591 million) from NIIT Technologies Limited continues to strengthen the company’s earnings/cash flows.

Growing CLG Business: Revenue from the corporate learning group (CLG) business grew 14% yoy to INR5,183 million in FY18 on account of customer additions in the managed training services (MTS) business (FY18: 39; FY17: 34). Consequently, the CLG segment’s EBITDA increased to INR761 million in FY18 (FY17: INR644 million). The CLG segment has a strong order book attributed to it securing a large contract in Canada from Real Estate Council of Ontario in April 2017, its existing contracts with large corporates and its acquisition of Eagle International Institute, enabling it to expand its training capability for global rollout of cloud-based enterprise applications in the pharmaceutical and life sciences industries. Growth in the strategic sourcing business also contributed to the rise in profitability. Competition from other leading players in the training space could squeeze revenue growth and margins.

Impact of Adoption of Ind-AS: NIIT adopted Indian Accounting Standard (Ind-AS) on 1 April 2017, as per the rules notified by Ministry of Corporate Affairs pursuant to the Companies Act, 2013. The company’s strategic sourcing business involves providing its clients access to a leading pool of third-party training providers and a full suite of support services. Earlier, NIIT classified revenue from the strategic sourcing business as its total revenue and sourcing cost (professional and technical outsourcing expenses) as expense. However, Ind-AS allows the recording of net income after deducting the pass-through sourcing cost. NIIT’s top line was INR8.5 billion in FY17 after Ind-AS adoption versus INR11.6 billion as per Indian GAAP. Post the Ind-AS adoption, interest coverage and net leverage remained at similar levels.

SNC Segment in Rebuilding Phase: Revenue and EBITDA from the skills and career (SNC) business fell to INR2.67 billion in FY18 (FY17: INR3.0 billion) and INR36 million (INR46 million), respectively, owing to a training slowdown in the information technology sector and a disruption in the banking financial services and insurance sector, along with delays due to the transition to the Goods and Services Tax framework in FY18. SNC’s EBITDA margins are likely to improve in the near term on account of the company’s focus on high-realisation courses and cost optimisation. Ind-Ra believes continued slowdown in the training requirement in the information technology and banking financial services and insurance sectors could lead to a further decline in the revenue and margins. New product launches and initiatives could help drive growth.

Shift of SLG Business towards Asset-Light Model: The school learning group (SLG) segment’s revenue plunged to INR593 million in FY18 (FY17: INR867 million) due to the planned ramp-down of government school projects and the completion of government contracts. The SLG segment booked INR15 million in EBITDA for FY18 (FY17: INR54 million), with EBITDA margins of 3% (6%). The decline in the margins was largely on account of the continuation of fixed cost relating to the government business. As part of its strategy to exit capex-driven business models and focus on IP and service-driven offerings, the company is focusing on the Go Forward and IP-led private school businesses. Lower-than-expected growth in the Go Forward business could negatively affect the profitability of the SLG segment.

Concentration Risk: The CLG segment contributes about 60% to NIIT’s revenue and almost accounts for NIIT’s entire EBITDA. Thus, longer-than-expected delay in the revival of the SNC and SLG segments and any regulation impacting the outsourcing of training could negatively impact the growth in the company’s profitability and revenue.


RATING SENSITIVITIES

Positive: Significant improvement in the SNC and SLG businesses reducing the concentration risk, along with continued growth in the CLG business, while maintaining the margins, coupled with continued low financial leverage, would be positive for the ratings.

Negative:  Future developments that could, individually or collectively, lead to a negative rating action include:

  • Higher-than-expected losses in the SLG business and/or further deterioration in the SNC business impacting the consolidated revenue and EBITDA margins
  • Margin weakness or loss of key customers in the CLG business
  • Inability to materially improve absolute EBITDA

COMPANY PROFILE

Established in 1981, NIIT, a global leader in skills and talent development, offers multidisciplinary learning management and training delivery solutions to corporations, institutions and individuals in over 40 countries. The company has a multi-product, multi-geography offerings portfolio spread across individuals, corporates, schools and other educational institutions.

FINANCIAL SUMMARY

Particulars

FY18

FY17

Operating revenue (INR million)

8,505

8,452

EBITDA (INR million)

746

674

EBITDA margin (%)

8.8

8.0

Interest coverage (x)

3.85

2.61

Net leverage (x)

1.65

1.82

Source: Ind-Ra, NIIT


RATING HISTORY

Instrument Type

Current Rating/Outlook

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating/Outlook

22 March 2017

12 February 2016

3 December 2014

Issuer rating

Long-term

-

IND AA-/Stable

IND AA-/Stable

IND AA-/Stable

IND AA-/Stable

Fund-based limits

Long-term/Short-term

INR414

IND AA-/Stable/IND A1+

IND AA-/Stable/IND A1+

IND AA-/Stable/IND A1+

IND AA-/IND A1+

Non-fund-based limits

Long-term/Short-term

INR1,068

IND AA-/Stable/IND A1+

IND AA-/Stable/IND A1+

IND AA-/Stable/IND A1+

IND AA-/IND A1+

Commercial paper (carved out of fund-based bank lines)

Short-term

INR340

IND A1+

IND A1+

IND A1+

IND A1+

Short-term debt

Short-term

INR200

IND A1+

IND A1+

IND A1+

IND A1+

Proposed long-term debt

Long-term

INR400

Provisional IND AA-/Stable

-

-

-


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity levels of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

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

    Ankur Rustagi

    Analyst
    India Ratings and Research Pvt Ltd DLF Epitome, Level 16, Building No. 5, Tower B DLF Cyber City, Gurugram Haryana - 122002
    0124 6687261

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121