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NIIT revenue shortfall may spill to next quarter

NetScribes/Abhijit Basu

NIIT's expected dip in software revenues from the US for the March quarter could spill over to the next quarter too, analysts forecasted.

"Since clients' projects have been delayed, it is not certain that the orders will come in the current quarter. Due to the deferment of the projects, the revenue shortfall might spill over to the next quarter," Priya Rohira, senior software analyst at Pranav Securities, predicted.

"The company's operating margin for the software business stands at around 35 per cent today, while that for the education sector is at around 21 per cent. As a result of the loss in revenues, the company's net margin could be hit by about 1-2 percentage points," Rohira said.

The spillover is likely, as the company has given no indication of the expected time of the order. This could have an impact on the company's annual revenues too.

NIIT said recently that it was expecting a dip in software service revenues from the US market for the March quarter. For the quarter ended September 31, 2000, the US market contributed 38 per cent of the company's total revenues. For the financial year ended September 31, 2000, the US market accounted for 48 per cent of the company's total revenues.

"Two of our software clients in the USA are merging leading to project consolidation and start delays. We expect the projects to get going once the merger process is completed. In addition, we experienced project commencement delays in another software assignment. NIIT is experiencing longer selling cycles for large value software business in the USA," said a company statement.

Meanwhile, leading brokerage Salomon Smith Barney said that it was reviewing its earnings estimates for NIIT after the announcement. According to the company, NIIT's repeat orders are at a low of 40 per cent for the second quarter, though the billing rates were steady. It expected revenues and operating profit growth in the January-March 2001 quarter to be flat.

"The company has witnessed a CAGR of 35 per cent over the past 3 years. However, it is expected to dip to 25 per cent this year," said a software analyst at Span Capital.

Goldman Sachs has also trimmed its fair value on NIIT from Rs 1,750 to Rs 1,300. It has also cut its EPS estimate for the current fiscal from Rs 64.19 to Rs 63.19. The EPS forecast for the next fiscal too has been revised downwards - from Rs 79.98 to Rs 75.53.

"While the company's domestic learning business is still on track, specific IT services issues, longer sales cycles, and weak new business wins are expected to hurt overall growth," said the Goldman Sachs report.

Meanwhile, the company's scrip plummeted 16 per cent within the first few hours of trading on Thursday. The scrip closed at Rs 1003.40, down Rs 191.10 from its previous close of Rs 1194.50. A total of only 55,725 shares were traded during the day.

"The announcement of the postponement was enough to send the scrip plunging. This is a clear indication that the market is in no mood to speculate. They want results, and if they are not there the market reacts violently," said the Span capital analyst. "I am, however, positive about the scrip. This is only a short-term downside and the scrip should stage a comeback soon," the analyst added.

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