FROM a low of Rs 1,560 to a recent peak of Rs 2,524, NIIT has rewarded the investors amply well. Currently, it is trying to recover after dipping to Rs 2055. On its way up it faces a resistance at Rs 2,500. Market players have felt comfortable with NIIT, but the question now is how far will it move up post Rs 2,500. It is one thing to pick up the scrip, when it has dipped below its value. It is quite another to expect it to behave like a momentum stock in the upper regions.And that is not without reason. Let us take a look at its strong and weak points. NIIT is a strong player in the software education segment. It along with Aptech has a little over 50 per cent of the share of centres spread over 40 cities.
Other companies in the training segment are SSI, Pentafour Communications, Tata Infotech and CMC. As the scope for training is emerging all over the globe, NIIT has been making efforts to tap this market as well. It has 62 centres located outside India, including one in USA, 17 in south east Asia and 14 in the Middle East, 17 in Africa. With the spread of Internet, web-based training has emerged as an alternate route for computer education. NIIT has launched NIITNetVarsity enabling students to learn online. It has also a computer-based training mode, where it has a little over 320 titles.
A fair share of this are Microsoft certified variety. The attraction of investors to software companies is because the growth rate is high. But the growth in education segment is just around 20-30 per cent. Operating profit margins are also lower at around 26 per cent compared to 35-40 per cent margin for software development companies. Education & Training brings in roughly 50 per cent of the earning. Multimedia brings in around 15 per cent.
Software solutions account for a little over 20 per cent. The company is a late-starter in the software business. Every business mix has its own positives and negatives. In the case of NIIT, the positive is its leadership position in the training segment. It has the potential to tap the global market and continue to enjoy its share of the growing market at home. But growth at home has slowed down. Again the mode of distributing education has its own complexities. The company operates through franchisees. Revenue and expenditure sharing are varied depending upon the arrangement. Learning through the Net is a recent development. All these make forecasting of profit margin a bit difficult.
By the same logic of business mix, NIIT could not be expected to be concentrating, atleast not yet, on high end in software solution business. It is these negatives, which lead the scrip to be a market under performer. At around 50 times discounting of its earning per share, it is difficult to see great upsides to the stock.
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