Transition trauma

For the best part of the ’90s and the early part of this decade, NIIT was best known for its IT education business, which generated thousands of computer specialists across the country. However, when the downturn hit at the turn of the century, NIIT, with its large percentage of e-commerce business, barely made it out alive. Compelled by this slowdown, NIIT undertook a complete restructuring that saw it spin off its education and software arms into separate units, NIIT Limited and NIIT Technologies. But five years after this move, sceptics continue to criticise the company’s business plans as it seeks to re-establish its brand in the market.

Rather than try to compete with the big boys of the industry, NIIT CEO Arvind Thakur is trying to find less populated markets to occupy; his endeavour is to move the company away from a linear growth model (more people and more revenues) to a focus on higher valueadded work.

Already Thakur has identified several verticals—just one of them is insurance—where there are relatively few players; he’s also zeroed in on segments such as software as a service (SaaS) and IT infrastructure services, where few Indian vendors have a solution. “We can’t compete in the large-scale business; we need to look for differentiation,” says Thakur. Critics, however, say that the company may have missed an opportunity over the last three or four years, when the IT industry grew exponentially and NIIT was in the midst of its business overhaul.

Unlike many of its peers, NIIT is yet to fully exploit the benefits of lowcost offshore IT services; in fact, the firm yet gets over 60 per cent of its business onsite—that is, from work delivered at a client location. “This means that NIIT’s costs are much higher than those of many of its Indian rivals and with MNCs also expanding in India the company needs to find its niche quickly,” says the marketing head of a large Indian outsourcer. As a consequence of this skewed ratio, NIIT’s profitability and margins too have struggled, with Thakur, however, arguing that it enjoys “the best margins in the mid-cap market.”

For the third quarter of this fiscal, NIIT reported operating margins of around 22 per cent, up from 19 per cent in the corresponding period in the previous fiscal. However, net profit was virtually flat at Rs 35.1 crore (as against Rs 35.3 crore a year ago). Unlike many competitors, NIIT has a very different revenue mix, getting half its business from Europe and nearly 10 per cent from the domestic market. NIIT isalso a slow starter on BPO with just about 800 people in that business, even as scale becomes a survival factor in this market. “We don’t see BPO as a standalone entity, but leverage for integrated IT-BPO deals,” says Thakur. With consolidation setting in and global tech giants on the prowl, NIIT will need to get its act together quickly.

— Rahul Sachitanand