NIIT Technologies Stock Analysis. Should you invest?

Case Study on NIIT Technologies

Hi everyone My name is Shantanu and in this post, I’ll talk about a very interesting stock which is also in my watchlist. 

The name of this stock is NIIT Technologies and I’m going to talk about the history of the company first then the business model, financials, and lastly my personal opinion along with the short term technical levels.

Now since NIIT Technologies is a subsidiary of NIIT, I’m going to be covering the history of NIIT majorly in this section.

So NIIT was brought to life by none other than Mr Shiv Nadar who’s the founder of HCL Technologies.

He invested 1 million rupees into NIIT which was founded in 1981 by two IIT Delhi graduates – Mr Pawar and Mr Thadani

In his interview in 2011, Mr Pawar stated that when he was spearheading corporate planning at HCL back in the 80s, he felt this problem of lack of trained IT manpower. He said that bringing people and computers together, was a huge challenge. This was when the idea of setting up NIIT came up.

Now, when setting up NIIT, as always many people tried to convince the founders that this is a wrong idea, and putting money into this idea is more like burning cash.

After months of pondering, he decided to move forward with a franchise model. However, in this case, he modified that model by adding an Indian Tadka.

Now the trick or the tadka was that He would try to get the most respected families in small communities to sign up as his franchisees. As you know Indians put great emphasis on the concept of pride and respect (izzat). And thus by exploiting a simple value, he built a great business which has expanded to US, China and Russia.

Now, as you might know, NIIT runs an educational training business where it trains professionals, in 2002 the company witnessed a surge in revenues from its software production department which was far greater than the revenues earned from their conventional education business.

This led them to setup NIIT Technologies as a separate company which became operational in 2004 and since then they’ve been expanding this business throughout the world.

Pretty interesting right, let’s now talk about their business model

So they offer services like Asset Management and Securities services which includes projects like Order

and Trade Management, Risk Management,

Mutual Funds, etc.

They’ve also been actively involved in developing software for banks example projects can be Client Experience software, Internet Banking and so on.

They’re also involved in making industry-specific software like building an app for internal use and enterprise solutions like application development and management.

Now in 2014 also saw NIIT Technologies foray into two new geographies Latin America and Ireland. This is important right now because this is when they started getting involved in the airline industry.

Now when I say this, what I mean is that NIIT Technologies started developing software for the airline industry. An example of this can be their partnership with an airport in Brazil to implement and transform the Cargo Handling system at that airport. Soon they started undertaking more projects from the airline industry from all over the world and I’ll tell you why I’m telling you about this when I discuss the financials of the company.

So yeah, to sum it up, NIIT technologies offer comprehensive end to end software solutions and services in Application

Development, Managed Services, Cloud Computing, and Business Process

Outsourcing. 

Now I’m going to discuss the financials of the company.

Now, remember I talked about how the company has been actively involved in providing services to the airline industry. Since the pandemic, as you already know that there have been serious implications on the travel and airline industry, the effect of that has also been seen here.

NIIT TECH derives around 13% of its revenue from airlines, and this has dropped to only 5% in the current quarter.

That being said, revenues from other verticals and clients have been pretty stable and are somehow able to compensate for the loss incurred due to airlines.

Now since the unlock and the restart many of the airlines have started working again, so the revenue from the airlines is expected to stabilize.

Liquidity is another one of the strongest points of this company. The company is virtually debt-free.

The company’s revenue and PAT (Profit after Tax) have been also increasing on a year on year basis which is very good.

Now my personal opinion is that the company is no doubt very good. They have been performing really well in terms of financials and their business model is also pretty solid.

One weakness that I can sense is that since belongs to TIER 2 group, the big giants such as TCS, Infosys which belong to Tier 1 can easily outbid for larger projects.

That is the only weakness that I can find and it doesn’t concern me much as the company or the management determined to expand the business by bagging more deals.

They have recently won three large deals in the previous quarter of which one is of US$30 million.

So, as I said, I have this company on my watchlist and I’m going to invest in this sooner or later.