Ladies and gentlemen, good day and welcome to the NIIT Limited Q2 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vijay Thadani, Managing Director and Vice Chairman of NIIT Limited. Thank you, and over to you, sir.
Thank you. Thank you very much everyone for joining this call which is in this busy result season for you to give your time for us. Really, I truly appreciate. I also want to wish you a belated Happy Diwali. We are here to discuss the results of the second quarter of FY 2022. This is a quarter ending September. Though there have been some events which have happened on the October 1st as well, which we will cover. Mostly we'll be discussing about the second quarter.
I think it's been a very significant quarter from a number of points of view because there is of course a steady growth in the corporate learning business and a growth which is at a much higher level than the growth that we had experienced for the last so many years. Very healthy order intake and contract intake that we have and very strong revenue visibility. Also a very strong margin much better than what we had projected. My colleagues here will take us through that. It's also significant because for the last 18 months or so one of the businesses has been under transformation.
I think we have now gone through that transformation exercise, and you can see the bump up which that business has experienced in this quarter, and that's another thing. This is a quarter in which both businesses have done reasonably well, and that's what we will take you through. The event that I wanted to mention about, which has happened on October 1st, is that we added another member in our family, and that is, a company by the name RPS Consulting, which we have acquired. We welcome the RPS Consulting team into the family as well as that business will give us some additional wings to plan our growth forward. We'll talk about all that and the environment that is in front of us.
I have with me the whole leadership team as well as the other members of the boards. I have Mr. Rajendra Singh Pawar, who is our Chairman. I have Rajendran, P. Rajendran, who is our Joint Managing Director. Sapnesh Lalla, who is the CEO and Executive Director, will be leading this discussion. In addition to that, I have Mr. Sanjay Mal, our CFO, Kapil Saurabh, our investor relations and M&A expert, as well as Mr. Prateek Chatterjee and the whole finance team. Mr. Prateek Chatterjee is in Corp Comm and the other members of the finance team will help us with other set of numbers. We'll, as usual, keep it to a short briefing, hopefully, Sapnesh, and then open it up for more detailed Q&A.
With that, I hand you over to Sapnesh and we look forward to a very interactive discussion today.
Thanks, Vijay, and thanks everyone for joining. Happy Diwali. I will try to take everyone through some prepared comments and then we can open it up for questions. As Vijay pointed out, this has been a good quarter for us. The revenues stood at INR 3,142 million. They were up 44% YoY and 4% QoQ. Both the corporate business as well as the Skills and Careers business grew. I'll cover each of them as I make comments about the individual businesses. Please note that these numbers do not include the acquisition of RPS Consulting which was done on the first day of October. Their numbers will start consolidating from Q3 onwards. Our EBITDA stood at INR 739 million.
It was up 115% YoY. The EBITDA margin was at 24%, up 780 basis points versus 16% last year. The sustained margins in Q2 predominantly driven by growth in the India business and improved run rate in CLG in spite of the impact of wage inflation and continuing investments in key capabilities. The PAT was at INR 524 million, up 101% year-over-year. The EPS was at INR 3.9 per share versus INR 1.8 last year. Talking a little bit about the corporates business, CLG achieved a growth of 40% year-over-year. This is, I think industry leading growth. CLG continues to set benchmarks in revenue growth and profitability across the training segment.
It has also outperformed the forecast that we provided last quarter. A great quarter for the corporate business. In the second quarter, the revenue for the corporate business stood at INR 2,722 million, up 40% year-on-year, up 3% QoQ, and up 4% QoQ on a constant currency basis. The EBITDA was at INR 786 million. It was up 97% YoY. The EBITDA margin was at 29%, up 837 basis points. The strong sequential growth was predominantly aided by accelerated ramp up in some of the new customers that we have acquired as well as the expansion in wallet share in some of our existing customers. During the quarter, the corporate business signed six new MPS customers.
It's probably the highest we've done in a quarter. Two of those customers were large FMCG logos, two large BFSI logos and two well-known specialized consulting brands. Two of the two BFSI customers were in the past project customers who signed up as MPS customers. The tally of MPS customers now stands at 63, and the revenue visibility is at INR 294 million at the end of second quarter. The margins improved owing to better product mix, some improvements in productivity, as well as continuing work from home environment and lower than expected expenses on travel and facilities.
To a fair extent, these helped offset the higher expenses due to wage inflation and continued investments in improving capabilities and expanding the sales and marketing for this business. As I had pointed out earlier, as markets start opening up, as customers start feeling better about meeting others and congregating, some of these expenses due to travel as well as facilities are going to start coming back.
However, as I have stated in the past, we continue to target long-term growth at 20% and profitability at about 20%, though given that we've had a couple of good quarters, we expect this year, the current year, the growth to be over 30% on a year-on-year basis and the margin to be in mid-twenties this year. Coming to the Skills and Careers business, the revenue for the quarter was INR 420 million, up 70% year-on-year. The revenue was up 11% quarter-on-quarter, driven by acceleration in the StackRoute and TPaaS product lines.
We pivoted, as you are aware, to a digital delivery model last year and have been since working on ensuring that we are able to help our learners achieve the desired outcomes through our digital platform. As I had pointed out earlier, we see this business as a strong EdTech platform for digital talent transformation for both individuals and corporates. The growth signifies that our customers are starting to take advantage of the capability that we have built. As I've shared on the previous call, we have accelerated investments in the business in the FMCG business, which we expect will further lift our revenue run rate in the second part of the year. The results would be visible starting Q3 and would continue to accelerate in the future quarters.
As I said earlier, from Q3 on, we will start consolidating the results of RPS, and we expect RPS to be EPS accretive from Q3 onwards. The RPS business has a run rate of about INR 26 crore-INR 28 crore per quarter and is growing with margins in high teens. The RPS business, as mentioned earlier, provides training in emerging digital technologies to working professionals, a segment which is seeing strong demand due to digital transformation across many businesses in India.
We see a multiyear cycle for growth in demand for digital talent, as you could see, not only across the global system integrators who are really enabling this transformation, but also across the global capability centers set up in India as well as most Indian enterprises. We expect the addition of RPS to be deeply synergistic of the global system integrators that are enablers of this digital transformation from most global corporations, the global capability centers set up in India who are early adopters of digital transformation and the cream of the Indian enterprises who are starting to get started on the path to digital transformation.
I think we now have a range of training programs on digital capabilities ranging from full stack development to data sciences to game development to cybersecurity, cloud, 5G and so on and so forth. Overall, I think NIIT has achieved significant transformation over the last six quarters across both its businesses, digital transformation being primary. CLG now is a top five global player in managed training services with industry-leading growth margins and return profile. The target market provides multi-year growth opportunity due to the large spend and low penetration that learning outsourcing businesses have at this time. Skills and Careers business is transitioning into an EdTech business engaged in servicing the rising demand for digital skills, both for individuals as well as corporates.
We believe that from an overall perspective, the company has the necessary ingredients for value creation. It has a differentiated delivery pedagogy for deep skilling with proven outcomes, a strong brand and innovative business model and a strong balance sheet to help accomplish all of these through strategic investments. We continue to believe that more companies will adopt outsourcing post-pandemic, and the demand for talent trained in digital skills will continue to grow globally. From a balance sheet perspective, our balance sheet metrics continued to be strong and improve. The net cash position improved quarter-on-quarter by about INR 118 million to INR 11,837 million. From a gross cash perspective, the gross cash was INR 11,930 million. The debt was down to INR 93 million.
The DSO days was 57 days as of September 30th, as compared to 52 days last quarter. The growth in the India business, predominantly the billing that we had towards the end of the quarter, contributed to the additional DSO days. Operating cash flow in Q2 was INR 369 million, and free cash was INR 346 million. I think with that, I'll open it up for any questions that you might have. I know I rushed through most of my prepared comments to make sure that you have enough time to ask any questions that you might have. Thanks.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question, please press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to unmute themselves while asking a question. Anyone who wishes to ask questions, please press star then one. The first question is from the line of Vimal Gohil from Union Asset Management. Please go ahead.
Yeah, thank you for the opportunity, sir, and many congratulations on excellent set of numbers. Sir, one clarification. My line was not clear. On the outlook for the CLG business. If I've heard you right, you expect the revenue growth for FY 2022 to be 30%+ and the margins to be somewhere in mid-twenties, right?
That is correct.
Okay, I think you also gave out the long-term view that, you know, this business could grow at about 20%. Again, please correct me if I'm wrong. I wasn't sure of the margins that you, if at all, you highlighted them for the CLG business.
Approximately 20%.
That's the long-term.
That has been our stated long-term direction of 2020. That is our stated long-term direction, so we are not changing that right now.
Okay. You want to grow at 20%, 20% and 20% margin. Fair enough. Just on the Skills and Careers business, if you could just highlight, I mean, you've made massive investments in this business. You are going to make some more, going forward. Just to understand, while you make these investments in people, et cetera, any idea on the industry, overall industry opportunity? How large is this industry? You know, in terms of that industry, size of the industry, where are we currently? Are we taking market share? How are we taking market share? If you could just highlight that. Thanks.
I think that's a good question. I think the size of the industry is massive. If you just look at the folks working in the IT sector, that's greater than 4 million. About more than a third of those work in global capability centers. Several fairly high percentage work at GSIs, and as I mentioned, both are significant customers of NIIT. If you look at banks, almost an equivalent number work in banks and financial services companies and insurance companies. If you were to look at the market that NIIT is addressing in India, a very significant market opportunity. With the acceleration in digital transformation, a very large percentage of the people who are working in these jobs need to get transformed or upskilled or reskilled.
I think that represents a significant opportunity. Given the ongoing war for talent, as India starts to invest in growth, as Indian enterprises are starting to come out of COVID-related lockdowns and are able to see the growth opportunity, there is very significant hiring that's going on, both in the IT sector, as you may have noticed, as well as in the BFSI sector. Both for our early careers business as well as the working professionals business, it's a great opportunity ahead of us. In terms of how we set apart from our competitors, I think the core differentiator NIIT has with the competition is our pedagogy, our digital platform, and our ability to create real outcomes when a person goes through our training.
That's the reason why many brands trust NIIT for training some of their key professionals, some of their key new hires, as well as hiring from you know folks who graduate out of an NIIT program. That's really a key differentiator and that's where most of the investments have been. In terms of your comment about massive investments, I don't know where you read that, but our cash pile has only grown over the last couple of quarters. While we made some investments, I guess the term massive might be overstated.
Just one more line. I think you also said what is the brand salience of NIIT. So just wanted to talk about the fact that it's perhaps the oldest company in the IT training business, and we are credited with having trained about 1/3 of the nation's workforce and have been a market leader ever since the time that we started. In recent times, one of the businesses, the Skills and Careers part of the business, did go through a transformation process because we switched from brick and mortar to digital or hybrid models. I think that is the transformation which Sapnesh was referring to and even I alluded to a bit earlier.
Otherwise it has a very, very strong brand appeal and very strong trust and recognition when it comes to dealing with customers.
Right, sir, a two-part question related to Skills and Careers. Given the fact that, you know, most of the business that you're doing in Skills and Careers is in India, does that or would that entail a higher working capital requirement? And the second part to it is, you know, I mean, it's grown extremely well this quarter on a YoY basis, albeit that is on a lower base. But you know, at what revenue levels are we looking to sort of break even in this? And any sort of margin guidance that you would want to give for this particular business as well? That is on Skills and Careers. And then I have one last question on CLG after you finish.
We expect to continue to grow on a quarter-on-quarter basis, in general terms, from an SNC perspective. We expect that we would close this year with growth which is upwards of 40% for the year compared to previous year. That's a growth projection. You know, the addition of RPS will add another INR 26 crore-INR 28 crore in terms of revenue per quarter.
RPS, the RPS acquisition will be a part of the Skills & Careers Group, is it? Not the CLG.
That's right. They transact most of their business in India.
Okay. It will be a part of Skills and Careers.
It is gonna stay as an independent business. It's gonna stay as an independent business, but we will report it as a line item under the Skills and Careers.
Okay. Got it. Fair enough. That itself should probably improve the margin profile of that particular segment, right? Because mathematically, if you're looking at an EBITDA positive company joining that line item, that should improve the EBITDA margin for the Skills and Careers Group, right?
Indeed.
Oh.
Yeah, indeed. It's accretive. Yeah.
Right. Last question on the CLG itself. You spoke about outsourcing penetration levels. We are hardly at 2% odd. Correct me if I'm wrong on that. Where do you see this going in the longer run? Where do you see its potential? I mean, in FY 2018 I had read somewhere that, you know, it was about 1.6%, that's come to 2% now. Where do you see this outsourcing spending as a percentage of total learning and development spend going in the longer run?
Well, I'm curious where you got the 2%, but I think from what I know of the numbers, about 20%-25% of the global 1,000 corporations have outsourced their learning in any significant manner. While 98% shows significant headroom, so does 75%-80%. I think the right number would be 75%-80% headroom. Even the ones who have outsourced have a fair bit of room to outsource. From a headroom perspective, very significant headroom over it.
Fair enough. Thank you so much and all the very best.
Thank you.
The next question is from the line of Samarth Singh from TPF Capital. Please go ahead.
Thank you for the opportunity. In terms of RPS, I think, Sapnesh mentioned that, it's EBITDA positive. Have we given the EBITDA margin of the business, pre-acquisition?
We expect on a continuing basis to be high teens.
High teens. Okay. Could you talk a little bit more about the acquisition? You know, why was this a good acquisition for NIIT? Can it be as transformational for SME for Skills and Careers as the Eagle Productivity Solutions acquisition was for CLG?
Sure. Thanks. I think it's a very good question. I think two real dimensions or maybe three. The first one is that the audience that they serve is working professionals. NIIT has typically addressed the early career audience. RPS addresses the working professional audience. Like I was pointing out in an answer earlier, that audience is about 4 million working professionals in just the IT sector. As you go beyond IT, there are a number of IT professionals within different working professionals as well. A very significant audience that NIIT was not covering in the past, we will be able to cover with this acquisition. Second, very strong market penetration among the global capability centers.
These are organizations of the type of Bank of America, Wells Fargo, organizations which are global in nature, but have set up significant sized global capability centers in India. That's a key market segment where NIIT has some penetration, but along with RPS, it enables us to get significant penetration in that market segment. That's a market segment that has among the highest levels of spends on training across the Indian enterprises. That's the second reason why we think it made sense. The third reason is RPS comes with partnerships with significant technology originators.
Organizations like Microsoft, organizations like Red Hat, organizations like AWS, Google are partners with RPS, and we expect that strengthening NIIT partnerships with these global technology originators would do NIIT good. A number of positives in that acquisition.
Okay. Any synergies between our current SNC business and RPS to help our, you know, the current business turn EBITDA positive?
Yeah, very complementary. Like I mentioned, the India SNC business, the predominant audience focus is early careers and with RPS' focus on working professionals, we will be able to increase the wallet share in most of the customers that NIIT has as well as RPS has. A lot of complementary skills and therefore very synergistic.
Okay, thank you. On CLG, would you be able to tell us what the customer concentration is, I guess, in terms of either top one or top three customers?
What is the customer concentration? I mean, give a little bit color on what you're seeking.
Percentage of revenues.
Revenue concentration. I would say less than about the top customer would be about 10%-12%. The top three would be a shade below 20%.
You're referring to CLG? Yeah.
Yeah, about the top 10 are in the 60% range. The top 15 would be about 67% range. The top 20 would be in the 75-76% range.
Very helpful.
I would also want to add that, you know, from a segmentation perspective, our customers tend to be in a reasonably diverse set of segments, all the way from technology telecom to BFSI to energy and natural resources, life sciences, and so on so forth. FMCG-
Right.
And so on.
Right. In a way, we constantly
A reasonably diverse set of.
We constantly have been highlighting, you know, sort of, a very heated Canadian real estate market, and something that should temper down over a period of time. My first question is, are we only involved in, as far as RECO is concerned, in new broker training, or do we also derive revenues from continued training for these brokers?
We focus on the new sales agent as well as the broker segment. Those are the two segments that we focus on. We offer continuing education as support to the alumni, as well as all existing registrants or sales agents and brokers.
Okay. From the RECO data available, it seems like the number of new sales agents has been fluctuating between 9,000-11,000 a year. Why, you know, and that's since 2017. Why is it that we keep highlighting that this is, you know, excessive number of, or rather heating market, in terms of number of agents that we're training per year?
I think the part about a heated market is more to do with seasonality and to some extent to do with increase we saw due to COVID as well as the fact that we made it convenient for a number of folks to take that program because of the digital transformation of that program. You know, during COVID, real estate became an attractive second career for a lot of people as some of them lost jobs, some of them could not step and so on and so forth. Taking a real estate education to become a realtor became both an attractive second career as well as the digital transformation of that program made it convenient to participate in that.
Therefore, it resulted into a few spikes. You know, if you were to look at sort of secular data, your data is right. Every year, the market adds about 9,000-10,000 net new agents to the pool of agents, which I think is about 90,000 or so .
Work in progress.
Yeah.
It is a lot.
Yeah. I think,
Between the students who are undergoing, who take breaks. They do two modules, they take a break.
Right.
They do two more modules. The total students enrolled will be different.
Yeah. Yeah, you're right. Very right, Vijay. To graduate 10,000 students, about 50,000 students start their journey into the program.
I see.
Over periods of time.
Okay. My last question, and it's around this is, you know, I came across a recent data point which said that Canadian residential real estate as a percentage of nominal GDP used to go about X%, and today it's at 10.5%. You know, assuming that things revert to the mean. I'm sorry? Hello?
Say that again. I couldn't clearly follow the data points that you were using.
It was data points that said on.
I also recommend that if there is more details required, we can discuss it offline because I think there may be others who are waiting for their questions.
Sure, sure.
If you don't mind, or we can come back after, in the end again. Normally there is time when people have run out of questions.
Sure.
We'd be happy to answer all questions. We don't like to leave any unanswered, but I just thought, you know.
Fair enough. Fair enough. Thank you.
Some of the people.
Thank you. The next question is from the line of Sangeeta Purushottam from Cogito. Please go ahead.
Yeah. Hi, good afternoon, and congratulations for the great set of numbers. I actually wanted a little more color on the transformation which is happening in the Skills and Careers business. Basically, since you're moving more digital versus physical, what would be the current breakup of revenue that you're getting through the digital medium versus physical? Also, are you transitioning more towards corporates? And if that's the case, could you also give me a sense of how much revenue comes from sort of corporate clients or corporate requests for training versus individuals walking in and paying for the training programs? And my last question is that what are the long-term margins that you are aiming towards in this business, and how long would it take us first to get EBITDA positive and then move towards those margins?
I think you had a mouthful of questions, but I'll try to remember every one that you asked, but if I do miss out any, do remind me. I think your first question was what percentage of our business is physical versus digital. 100% of our India business is digital at this time.
Right.
Whether it's going to be the same one year down the road, it's hard to tell. At this time, 100% of that business is digital. I think your second question was around what might be the split between the business that is transacted on behalf of corporations versus on behalf of individuals. The split right now is, I would say about 1/3, 2/3 in favor of corporations, more specifically because of the acquisition of RPS. Looking ahead, about 1/3 individual and 2/3 corporate. Given the investments and the brand that we have, we expect to gain some parity between these two as we look ahead.
Now I'm missing a couple of the last questions that you asked. Sorry.
Yeah. My last question was that.
Yeah.
Yeah, my last question was on the margin profile. You know, by when do you think that the Skills and Careers business will actually hit breakeven, and what are the long-term margins that we you know, you're targeting in this business? By what time frame?
On the Skills and Careers business, should start seeing some level of profitability in the coming quarters. Then, we will hover, go up and down a little bit, maybe a couple of quarters, but as we look ahead the next few quarters, we should start seeing profitability. I think from a breakeven perspective, we are pretty close to breakeven from a Skills and Careers business perspective. In terms of long-term margins, we are aiming to hit a 20% margin business as we start hitting steady-state.
Right. Okay. If I can throw in one more question. Does the digitization of this business open up overseas opportunities for you? And at what stage, if at all, are you going to look at those?
See, overseas opportunities are not closed for our business. We operate in more than 30 countries today through our corporate business. Our corporate business has the ability to bring all the capabilities of our SNC business to our corporate customers, and we routinely do that. In terms of new opportunities, there will be some because with RPS we are bringing in new capabilities which we will start leveraging overseas. But as it is, we, you know, at NIIT we leverage all capabilities that we have so that we can benefit our customers globally.
Great. Thank you very much.
Thank you. The next question is from the line of Shraddha from Ambit. Please go ahead.
Yeah, hi. Congratulations to the management team on a great quarter. Most of my questions have been answered. Just a few questions, Sapnesh . What is the proportion of StackRoute in our SNC business currently?
We don't go into individual line items, but I would say that it is upwards of about 64%-65%.
StackRoute and TPaaS.
Yeah. StackRoute and TPaaS together are about 65% of our SNC business.
No, why I'm asking this is because I thought probably there's some commonality between what RPS offers and what we already do under StackRoute. From a complementary portfolio perspective.
They are complementary. The commonality is that they both address IT professionals. Like I pointed out earlier, the StackRoute business focuses predominantly on early career segment, and the RPS business focuses predominantly on the working professionals.
Got you. Secondly, you know, you did indicate that you're looking at long-term 20% margin in SNC. Do we expect to hit this kind of a margin, say, towards the latter half of 2023 or is it a 2024 kind of a phenomenon that we are looking at 20% kind of a margin?
2024.
Right. Secondly on the CLG business, how should we look at the RECO deal? I guess that you had kind of hit the peak in phase three or probably 1Q. From the current base, which has already seen some moderation, do we expect a further moderation in volumes from RECO in the next coming quarters?
We don't get into talking about details of individual customers, but I think RECO and the real estate business in Canada continue to be a great customer. As one of the other callers mentioned that the real estate market adds about 10,000 agents every year. Like I pointed out earlier, COVID accelerated some of that, things might normalize, but as we move forward. I would say it's a good customer, it's a healthy customer, and we continue to do well in it.
No, sir. The reason I'm asking the supplements is because I assume RECO is a very high margin business. If you see some significant compression in volume from RECO, then it might impact the overall margin structure of our CLG business quite considerably. From that perspective, I just wanted to check, is it in the base already or are we looking at further, you know, further cool off in RECO deal volume?
From a long-term perspective, we do not see major compression. That market, like one of the other callers put it, adds about 9,000-10,000 real estate agents every year. That's been so for the last 7-8 years. That's while it saw a little bit of a spike due to COVID, but in a normal sense, that 9,000-10,000 is likely to stay the way it is going forward. Unless something major happens in the real estate market, which we are not aware of at this time.
Right. Similar to, you know, what we do in RECO, we are also looking to get into other real estate markets in other countries. So have you seen any breakthrough in any such large deal or are you in scheduled discussions anywhere?
We are continuing to look at opportunities not just in real estate, but other license to operate categories of work. As soon as we have something material to report, we will talk to you about it.
Sure. That's helpful.
We are making progress in that direction.
Sure. That's helpful. Thanks, Sapnesh, and all the best.
Thank you, Shraddha. Thank you for joining and be very regular on our calls. Appreciate that.
The next question is from the line of Ashish Agarwal from Principal India. Please go ahead.
Hi. Two things from my side, on the CLG side.
Excuse me. I'm sorry to interrupt. Your voice is breaking.
Is it fine now?
We still can't hear you very well.
Is it fine now, sir?
Yeah, much better now.
Great.
Go ahead.
Sir, two things. First of all, on the CLG business side, just wanted to understand, the pandemic, has it changed something structurally which will make us grow at 20%+ going forward? That will be really helpful if you can explain that. Secondly, on the CLG side, last three quarters we have seen our revenue visibility remaining at a $290 million level. Just wanted to understand the reason. Is there something, some client loss, et cetera, which is impacting that number?
Maybe I'll address that first, and then just remind me what the first question was. We haven't seen any customer losses. However, given the growth, we have consumed more quarter on quarter, which lowers the visibility. While we've added a significant number of new customers, we've also consumed a fair bit as revenue has grown quarter on quarter. The second thing I would say is that visibility is a number that's built up of contract values remaining over the life of contracts. We have a few large contracts coming up for renewal over the next couple of quarters. As those contracts renew, and we expect that they'll renew favorably, we'll see an improvement in visibility.
Got it. Sir, my first question was regarding in this CLG side, has something changed structurally post-pandemic? Has pandemic changed something on the corporate side where they want to accelerate the learning for their employees and are more amenable to now outsourcing that piece of training, so to speak?
We haven't gone to the post-pandemic timeframe as yet. At least that's my belief so far. We might get into that period sometime next year, but at this time we are not post-pandemic. During pandemic, the consumption of training has actually gone down for most of our corporate customers. The growth that we have seen from a CLG perspective has been predominantly based on the investments that we have made or the disproportionate investments we've made in sales and marketing over the last few years in terms of customer acquisition, as well as the result of some of the good work that NIIT has done, which has resulted into wallet share expansions with our customers.
I think, however, what you're saying is likely to happen over the next few quarters as our customers get into post-pandemic and start investing in consumption of training to achieve transformations that they're looking for.
Yeah, thanks, sir. Yeah. Yeah, thanks, sir.
Thank you.
Thank you.
Participants to ask a question please press star then one. The next question is from the line of Ronak Vora from OHM Advisors. Please go ahead.
Hello, sir. Congratulations on a good set of numbers. I have two questions, mainly on the CLG end. The first question is basically in terms of demand that we are witnessing and the revenue ramp-up that is currently happening in the CLG business. Is it all based on, you know, increased revenues from existing customers that is more mining from them? Or is it the new deals that are ramping up for us?
I think it's a combination of the two. Like I pointed out earlier, the work that we've been doing with our existing customers in terms of consumption of training, that part has not grown, though, I would want to report that the negative slide that was there because of COVID has stabilized, but we haven't seen growth in consumption as yet. The growth that we are seeing in revenues is predominantly due to improved wallet share that we have at each customer, as well as the acceleration of the new contracts that we've won over the last few quarters.
Basically, we can say that is basically the growth coming from the newer verticals that we are entering or the existing vertical? Or can you just, you know, draw a picture in terms of what kind of verticals do we see this whole, 20% sustainable growth from? Is it just IT, healthcare or any other spaces?
No, I think, for us, we expect growth to come from a diverse set of verticals, though a fairly significant part of our business comes from the technology and telecom vertical, though that significant percent is just south of 30%. Our portfolio is fairly diverse, and we expect growth to come across different verticals.
Okay. Lastly, you know, the revenue visibility has been fairly constant in the CLG business at around $280 million-$290 million. Are we seeing any lags in closing all these large deals? Or, how is it, you know, if you could say, or what kind of revenue visibility do you see going ahead?
I think, like I was explaining to the previous caller, while we have added a significant number of new customers, we are also, given quarter-on-quarter growth, consuming a fair part of what we are adding into the bucket. We also, as I explained earlier, for us visibility is the balance of contract value left over the period of contract. A couple of our significant contracts are up for renewal in the next couple of quarters, and as they renew, we will see a jump in visibility.
Can you know, just as in a clarification point of view, our revenue visibility should be equal to new contracts less contracts which are work in progress or, you know, under execution. That is how-
Yes, over the period of time.
Over the contract duration.
If it's a five-year contract and three years are over, then only next two years visibility will be there.
Okay.
Until it's renewed.
Execution of a contract for a year is deducted from our revenue visibility, right?
Yes.
That is correct.
Every quarter. What gets deducted is the revenue. Why we don't call it order intake, because these are not firm orders. These are based on past trends of what they have spent. Remember, it's an outsourcing business. It's not a projects business.
Yes, I totally understand what you're trying to say. Thank you.
Thank you.
Thank you. The next question is from the line of Samarth Singh from TPF Capital. Please go ahead.
Yeah. Thank you for the follow-up. Just, I think a previous participant also touched on, you know, possible margin compression due to reduction in growth in terms of the RECO deal. The point I was making was that, if you look at the average value of Canadian real estate investment as a percent of nominal GDP historically has been about 6%, and since 2017 it has been rocketing up, and today is at 10.5%.
In case it reverts back to mean, you know, in this, is there a risk to our revenue and margin guidance, or are there enough levers in the business where we would be able to sort of, you know, protect our profitability, if there's a significant deceleration in the business, in the RECO business?
Now see, RECO is one out of 63 customers that we have. It's a significant customer, and it enjoys significant profitability, but it's one out of 63 customers that we have, and we are continuing, like this quarter we added six customers. We are continuing to add new customers. In terms of compression-related risk, there could be. Real estate market is a cyclical market. It's enjoying a significant high at this time. That high is encouraging a lot of people to choose a real estate career. Also, given COVID, and given that this program is delivered digitally, it's a convenient method of getting into a second career in real estate.
Interestingly enough, the interest in real estate, while, you know, from a headline perspective, might appear that as prices go up, so should the interest in real estate. But even when prices are not high, it's not like people are not buying and selling houses, its just that when prices are high they're paying more money. The buying and selling of homes continues to happen, and that's why I think you were saying earlier, every year, 9,000-10,000 real estate agents become certified.
Right.
I think while there is interest.
Yeah.
Prices are up across all of North America, in terms of real estate, but you know, if you were to really look at the number of transactions that are happening, it's not like the number of transactions have become very high. In fact, as you might know, in a transaction, there's always a buyer, and there is a seller. In a buyer's market, there might be 10 buyers to one seller. In a seller's market, there could be 10 sellers to one buyer.
Right.
Either you are a buyer or a seller, you have to engage with a real estate agent.
Got you. Well, that's very helpful. Just two housekeeping questions. One is, the cash, net cash number that you gave us, that is prior to, cost of acquisition for RPS. Is that right?
That is correct. That was the Q2 ending number. As we pointed out, the acquisition happened in October.
Okay, great. The last one is, what should we expect as a dilution in terms of shares outstanding every year due to ESOPs?
Say that question one more time.
Are you saying because of ESOPs?
That's right. Just what is the expected dilution in shares outstanding because of ESOPs?
I think our total ESOP pool is 10% of equity, and I don't think it is very huge and very little is given away. So I don't think more than what?
1 or 2 percentage points.
No, no. One or two is very high.
No, each year. No, no dilution. Yeah.
Okay.
No, no. He's saying as people exercise. I think more people might have exercised in recent times because of the spike.
I think you have our fully diluted EPS also available. If not, we can give it to you, fully diluted EPS.
No, I was just, you know, as general.
Kapil, do you have fully diluted EPS available? Kapil there?
Yeah.
Yes, sir. Unmuted.
Hello.
Yeah, yeah. Samarth, I'll
Okay.
If anywhere there-
We can share that with you.
Sure. No, sir. I wasn't talking about the fully diluted EPS. I was as a policy, what percentage of our shares outstanding would we expect to pay out every year going forward, you know?
It's a very, very small percentage. I don't have it. I mean, it's not a data element which is large enough for us to track, but we'll get back to you. Let's give you the data.
Okay.
Proper data. Let's give you proper data.
Fine. Thank you very much.
Thank you. The next question is on the line of Vikram Dugal, an individual investor. Please go ahead.
Congratulations, sir, for excellent numbers. Hello?
Thank you.
Hello.
Go ahead.
Yes. Congratulations for excellent numbers, sir. My question is more as a shareholder with a futuristic, you know, thinking, is that I had two questions. One is that India's new education policy. How are you kind of participating in that India story? What is your vision on that? The second question is that, would you replicate the 1998 to 2009 education model for younger India through physical centers, since you're 100% physical in India, like you said? These are two questions I have.
I think the first thing I would want to say is we are 100% digital at this time, not 100% physical.
Okay. Okay.
Unless I heard you wrong, I just wanted to clarify that we are 100% digital today, as compared to almost 100% digital in 1998.
Physical. Right. I understand.
Physical.
Yes. Right. I understand that.
Just to give you a historical perspective, first of all, the company has existed from 1982.
Mm-hmm.
There was an element of technology-based learning even from day one. But predominantly physical and 25%-30% was delivered digitally as a part of the hybrid scenario. At this point of time, thanks to the pandemic, we have moved to 100% digital because all this while people had to get trained, even though education centers couldn't be open because of regulation. We have continued to deliver 100% digital, but over a period of time, how it will settle down will now also depend on how new consumer tastes evolve. That's perhaps where it will.
That leads me to one more thing which I would like to understand is that, with the newer kind of universities which are coming in, NIIT University is also there, although it might not be in this company, but you know, but are we university kind of ready with content which you would like to participate? Or it would be more the older model where you would be attracting the consumers, the younger India?
Let me explain to you. I think the universities shelf life or the content shelf life with the university is larger. The average lifetime of content is reducing very dramatically. What happens is that every university, anywhere in the world, needs top-up professional skills training, which is deep skills in the area that the university would educate them on. Just a fundamental difference between education and training is education is more broad-based but not as deep. Training is when you go very deep with a certain set of skills. This is a supplemental area to formal education. What new education policy will do is provide a lot of flexibility and multiple multidisciplinarity, and would create spaces for this deep skills training also to become a part of the formal curriculum.
There, I think universities would also benefit from NIIT's intervention and NIIT's contribution.
Right. That answers my questions, you know, because I was just particularly looking at the digital. Just going digital, we have a lot of competition also coming in, the newer unicorns, as they say. But NIIT has been around for a long time, so I was just wondering if a hybrid model would probably kind of, you know, tutor-led learning could have helped us. But that's very, very premature. I mean, it's just a comment. Thank you for taking the question, sir.
Thank you. Thank you for your comments. Thank you.
Thank you. Ladies and gentlemen, we would request participants to please limit your questions to one per participant. The next question is from the line of Rahul Jain from-
Should we, I think we should go on. There are a few more questions, so we'll extend it by 10 minutes more.
Sure. We take the next question from the line of Rahul Jain from Dolat Capital. Please go ahead.
Yeah, hi. Congratulations. Just I have one question.
You're not very well probably.
Is it any better now?
Yeah.
Yeah. I said congratulations. I think my question specifically is to, in terms of understanding, the broad prospect of the CLG business. I'm sure you might have said something earlier, which I might have missed. What I essentially want to understand, I understand your constraints, given the kind of a major shift this business has seen in last couple of quarters. It is difficult to capture it very precisely. The kind of a new client addition that we are seeing, the kind of untapped opportunity we have from client budget, which can, you know, may see some pent-up at some point of time. What kind of two to three or five year kind of a goal we should have with this business from a growth perspective.
Also our margin view have been, you know, very conservative, but we kept on delivering better than what we've been saying in the past. How one should see it from both short-term and long-term perspective in sales?
I think from a long-term perspective, like, we pointed out earlier, we should look at the corporate business as a 20-20 business, 20% growth, 20% margin. From a short-term perspective, the corporate business should see for the year a 30%+ growth and the margin in mid-twenties for this fiscal year.
Yeah, yeah. Of course, you have said about this earlier. I was more trying to understand what I'm looking for is a specific guidance for FY 2023 or 2024. You think, as I said, some of the benefits is one is that you may have more demand from the same customers, and we are seeing a significant jump in the total customers that we are servicing. Could we, let's say from a real perspective, what can we aim for a much higher growth and much better margin than 20% that we are kind of indicating?
That is our goal, but what I pointed out is what we are able to see at this time.
Right. I think you can do it, but from a more steady state basis, this is the 20% is a more realistic way to look at it.
That is correct. From a long-term perspective.
Thank you. Once again, congratulations.
Thank you. Very kind.
Thank you. The next question is from the line of Vimal Gohil from Union Asset Management. Go ahead.
Yes, sir. Thank you for the opportunity. I hope I'm audible.
Yes. Loud and clear.
Thank you. Just wanted to check on when we are looking to grow our SNC business, Skills and Careers business, rapidly, does that have any implications and that too with profitability? Does that have any implications on our working capital by any chance? Should we assume sort of a slightly higher requirement of working capital because we are looking to you know sort of grow that business rapidly? Will that growth come at any small cost in working capital is what I'm trying to understand.
Not very material, but maybe marginal, but not very material.
That would be because again, it's a B2B sort of a business, maybe that's why, right?
No, it's not because it is B2B. Because it is a balanced business where retail customers pay in advance. In fact, in this business, we have seen in the past a negative working capital.
Right. I
It will definitely not put a strain on working capital. If at all, when it used to, at that time it was asset heavy because there were licenses and computers and real estate involved. Now that part is not there. It's not capital intensive, just to make it simple for you to understand.
Right. There are no risk on higher payables, higher receivables over there.
No.
As against our overall picture.
No.
Oh.
I would say very comparable. If at all, it is plus minus one or two days here or there.
Fair enough. Got it. Thank you so much. That's all.
Thank you.
Thank you. The next question is from the line of Ronak Vora from OHM Advisors. Please go ahead.
Hi, sir. Sir, on the margin end, sir, since we are going more on cloud, more on digital and, you know, with, you know, existing ramp up of our own customers which will happen or, you know, increased wallet share from our existing customers, don't we see that our margin should see operating leverage benefits when you're guiding 20%? Is that very conservative on your end or, you know, we should do upwards of 30% margins also going ahead?
Yeah, I think, I've mentioned this in the past that one of the reasons why we've been able to grow in spite of the fact that many training companies actually did not grow was because of the timely investments we made in sales and marketing as well as capability creation. Those investments are continuing. While with growth we should get higher leverage, but we are continuing to reinvest so that the growth can perpetuate.
You mean to say that we will reinvest or, you know, almost like if we say 20% growth in terms of our revenues, all that money accrued cash flows or whatever it would be, would be reinvested in sales and personnel only to get more growth. That should lead to a much higher growth than 20% if you're trying to, you know, saying in the manner that you're saying.
I think it is not right to assume that the cost efficiencies that we have today because of all the lockdowns will continue. Some of these costs will come back. Just from a business as usual perspective, it would not be right to expect 30% margins going forward because travel will start, use of facilities will start, and a number of these customers will expect to meet with us face-to-face or get trained face-to-face. While at this point in time we have significant efficiencies in the business from a cost perspective, some of them would not be sustainable.
I understand what you're trying to say in terms of travel costs and everything, and that is true for all IT companies, to be very frank. But what I'm trying to understand is, you know, with, say, if you-
Let me pause you there. See, IT companies and training companies are very different. If you've been to a training program, you'll notice that the training program goes on for three days or five days, whereas an IT engagement goes on for many months. It is a very different business. I didn't mean to interrupt your question, but I did want to point out that the training business and the IT businesses are two different businesses.
Okay. Okay, sir. Thank you.
Go ahead with your question.
Okay. What I'm trying to say is, you know, once, say, we've, you know, added a new client to our portfolio and say he has like, say, a quarterly training program or a six-monthly training program or whatever with this kind of, you know, repetitive business. Say, every quarter he does a training program for all the freshers that he hires or for the mid-level managers to reskill or whatever it may be. You know, once a training program is fixed for one customer, say a large customer, so can it not be replicated? You know, like 70%, can it be replicated for other customers also? I understand that some level of customization is necessary.
I'll have to spend a minute to describe in a little more detail how our corporate business works. Most of our corporate business focuses on the proprietary training needs of a customer, and these are non-transferable. Proprietary training needs, for example, of somebody like an oil exploration company would be to figure out how to drill a hole in the ground and see if there is oil beneath it. Now, how one company does it versus another company is very different. There is little reuse in that, which is unlike what a catalog training provider, like Skillsoft would do, where they would invest in creating, let's say, a course. Or Coursera would do, who would invest in creating a course on Excel, and then 1 million people will use that course.
That's not our business model in the corporate group.
Say, suppose the same oil exploration company example, if we have, you know, just added a new oil exploration company, and in the first year we've developed courses for them for the mid-level freshers and all types and all levels of hierarchy, you know, for learning and corporate training. Suppose for the lower level guys or the freshers, you introduce the course how to drill an oil well or how to, you know, do the analytics of data. Can it not be replicated for the same oil company, you know, n number of times for n number of training programs that they do throughout the year? And, you know, doesn't this kind of replication lead to operating leverage benefits, is what I'm trying to understand.
For that customer it does, but there are only so many oil and gas companies who actually have drilling operations in the world. While I understand what you're saying, from a practical perspective that part is not material.
Okay, sir. Thank you.
All right.
Thank you.
We can always discuss more, if you would, when we meet or on another call. I'm just being mindful of time because we asked for a ten-minute extension and even that is over. I think there are still some questions left from people. Are there any?
Yes, sir. We have-
Operator, are there any people?
Yes, sir, we have one in queue.
Okay, that's the last question, please.
Sure, sir. Ladies and gentlemen, we take the last question from the line of Ganesh, an individual investor. Please go ahead.
Sir, congratulations for a great set of numbers. All my questions are answered. All the best, sir, for the future quarters.
Thank you very much. Yours was the best question.
Thank you.
Okay. Thank you, Ganesh, for joining us. Operator, we are done with all the questions.
Yes, sir.
I think, we can wrap it up now.
Sure. Sir, any closing comments you would like to add?
Okay. Yeah. I just want to thank everybody for a very spirited discussion, and I think there's a lot of good questions. As usual, I would like to state that every question of yours gets us to think. Not only do you benefit from the answer, but we benefit a lot from your question. Thank you very much for your cooperation, guidance, questions, and we look forward to your continued support in the future. With this, we would like to end this call and wish you all the best. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of NIIT Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.