Ladies and gentlemen, good day, and welcome to NIIT Limited Q2 FY 2024 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 K. Thadani, Managing Director and Vice Chairman of NIIT Limited. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone. Thank you very much for joining this call. I have to reiterate that we appreciate your time, given that it's a busy result season, and you decided to spend this one hour with us. We truly appreciate. Obviously, we thank you for your continued interest in NIIT Limited and for asking us the questions which also educate us as well as prompt us to go forward in the right direction. Today's agenda is to provide an update on the second quarter of the fiscal year 2023-2024, and therefore Q2 FY 2024 is the call.
And I would start with some highlights. I have our full team here, Mr. Rajendra Singh Pawar, Chairman of the company, Mr. Sapnesh Lalla, Director on the board, Mr. Rajendran, Joint Managing Director, Mr. Sanjeev Bansal, our new CFO, and, Mr. Kapil Saurabh from Investor Relations, as well as other senior members of the team. So before I get into the details, I just want to talk about the seasonality of the business that we are in, at NIIT Limited, which is also was earlier called the Skills and Careers Business.
We basically look at two kinds of learners, those who are in early careers and those who are working professionals. And, so business has seasonality because there are certain quarters of the year, when each of these two are not available in as much, as many numbers as we would like them to be. And therefore, a little bit of seasonality does creep in.
Quarter two is typically a very good quarter for us, and it is in that context that we are talking of, this business. So we normally talk of the business on a year-on-year basis, year-on-year growth, because that takes away the seasonality impact. However, given what we saw happening in the last two quarters, quarter four and quarter four of last year and quarter one of this year, when there was a total hiring freeze, on from Tier 1 global systems integrators, this time we are in a recovery phase, and therefore, we decided that the best thing to do would be to talk about the results on a Q-O-Q and, talk about the recovery process that we are seeing.
Of course, also share the Y-O-Y numbers, where the volumes have recovered to an extent, but not to a full extent, and I'll talk about that. Revenue for quarter two was INR 814 million, which was up 33% quarter-over-quarter, but down 13% year-over-year. Compared to last quarter's results, when the revenue was down 50% year-over-year or 33% year-over-year. Right now, we have recovered from there to quite an extent. This recovery in volumes, even though it in volumes is there despite the environment remaining very challenged and is driven by a 69% growth in enrollments quarter-over-quarter.
We saw a healthy uplift in both Technology and BFSI programs, and the growth is also across Early Career and Work Pro numbers. So if we consider ourselves as a matrix which has Technology and Work Pro on one axis, or technology and BFSI on one axis, and early careers and Work Pro on the other, then in all four quadrants, in all the row totals and column totals, we have seen growth across the quarter. However, in technology segment, the year-on-year growth has not recovered to the levels that we were there last year, though we made a significant progress quarter-on-quarter. We will discuss more about that as we go forward.
This was contributed by a deliberate focus which we had on Tier 2 global system integrators, who welcomed our contributing to improving their talent profile. Higher GCC penetration. GCC is another segment which has been growing. Our own focus on GCC has been increasing, and I think in this quarter we saw higher GCC penetration, which contributed to the quarter-on-quarter growth. The one which actually contributed very significantly for this was the significant expansion that we had in BFSI.
This resulted in StackRoute and TPaaS, the two stacks growing 93% quarter-on-quarter, and is now contributing 32% to quarter two's revenue. At the back of this, however, the volume of training by Tier 1 GSIs, which typically contributes a very significant portion of the revenue, remain compressed. This explains the Y-O-Y shortfall, and upon recovery, represents a very meaningful growth opportunity, because we do believe that the Tier 1 GSI hiring freeze is temporary.
We don't know whether it's for a couple of quarters or more, but as soon as that recovers, that recovery will sit on top of the sustained, growth that we have we are beginning to experience in the segments that we focus on. Revenue mix from Early Career learners was INR 398 million, as compared to INR 330 million. It was 21% Q-O-Q. Contribution from early career learners was 49% to quarter two revenue. In the Work Pro segment, we saw a revenue of INR 416 billion, which was 41% Q-O-Q.
The contribution from Work Pro segment increased to 51% as compared to 47%, last quarter. The contributors to this Work Pro segment was some very interesting programs, whether it was full stack developers for working professionals, Digital Architects, Digital Versatilists, as well as pivotal roles in banking, which were to do with digital transformation, risk management, and wealth management. So overall, BFSI showed growth both in revenue and enrollment for Early Careers as well as working professionals, both quarter-on-quarter and year-on-year.
While in Technology, all round growth in enrollment, revenue growth, however, was in working professional. And overall, I think quarter-on-quarter, revenue was up, while year-on-year there was a decline. Also, we've been able to take advantage of the uncertainty in the environment and have been able to rationalize our cost structure and increase our operating efficiency.
As a result of this, along with recovery in revenue, EBITDA improved by INR 86 million quarter-over-quarter, from a negative INR 64 billion last quarter, and this was driven by, obviously, a higher revenue level as well as significant cost rationalization initiatives that the company took. EBITDA margin was at 3% compared to -10%. Net other income in quarter two was INR 137 billion. This includes the impact of treasury income of INR 112 billion. PAT was at INR 106 billion, as compared to INR 22 billion in quarter one and INR 47 billion last year. The company is continuing to invest in new products and new channels for growth.
CapEx for the quarter was at INR 89 million. We are seeing some early signs of success in training on artificial intelligence and in using generative AI and AI for training. Company is investing in products to equip customers with AI skills. So during the quarter, company introduced new specialized programs in AI for its customers, and is also adding components, AI components, across its portfolio programs, such as full stack development and digital marketing.
Company is also investing in the use of AI in our pedagogy and platform to improve learning effectiveness and learning, learner experience, in addition to contributing to overall efficiencies of the organization. For the balance sheet, the balance sheet metrics remain strong. DSO was at 53 days, as compared to 63 days last year and 41 days last quarter.
Net cash at the end of the quarter stood at INR 697 crore, INR 6,974 million, INR 6.974 billion. So despite the challenging environment, we seem to have arrested and have arrested the decline in quarter one fairly substantially, and have seen strong sequential improvement in both enrollment and financial performance in quarter two. We expect to sustain this sequential growth in subsequent quarters, barring seasonality impact which may happen in, for example, quarter four a little bit. We expect, therefore, H2 FY 2024 to grow significantly over H2 FY 2023.
However, given the delay in pickup of hiring in Tier 1 GSIs, we are, we are expecting the full year revenue not to reach our guidance of a single digit growth, but maybe just flat or marginally low. Of course, when the pickup in hiring happens, of which there are some early signs, at least in tier two GSIs, we would benefit substantially. We do expect to sustain profitability in the second half of the year, and therefore expect in the earlier projected single digit margin for the full year.
Overall, as a summary, I would like to say, Tier 1 GSIs stopping hiring have had a major impact in the last two quarters, that is quarter four and quarter one. However, this year, this quarter, success with the Tier 2 GSIs, the increased penetration in GCC and special focus on BFSI, especially on large pivotal roles, has contributed to a robust quarter-over-quarter growth. Cost rationalization and efficiency gain have led to positive EBITDA, even though it is at a lower revenue run rate.
Sequential growth, we believe, will sustain across quarters and barring seasonality impact in quarters like quarter four. Hiring reduction by Tier 1 GSIs will definitely result in a significant benefit whenever that happens. New products, new initiatives will contribute to acceleration next year. Many of these new products and initiatives are at, in the final stages of completion, but we will be able to see the benefits only during next year. We remain committed to our long-term vision and the stated aspiration that we have shared earlier. So I would like to stop right now and open the floor for questions.
Thank you very much. Yes. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a question from the line of Ganesh Shetty, an individual investor. Please go ahead.
Congratulations, sir, for a good set of numbers, and especially the EBITDA and bottom line numbers in such a bad macro. My question is regarding our TPaaS and the StackRoute offering. So these are very distinguished offering we have in the market, and I just want to understand whether we are having enough marketing initiative to understand the significance of these products to our prospective clients. Can you please throw some light on this, sir?
Sure. Thank you very much. But first of all, thank you for your nice words. Yes, StackRoute and TPaaS both have done exceptionally well over the years, if you noticed, and have always risen up to the occasion whenever the opportunity demanded so. In StackRoute, we have a very specific and differentiated offering, and that is really appreciated by our users, whether they are consumers themselves or even corporate, who get their fresh hires trained on these boot camps.
We have increased our focus on marketing through a number of initiatives, so that is the test that you saw in coming through Tier 2 GSIs, because those have to be approached through a number of below-the-line initiatives. And, a lot of investments were made in below-the-line initiatives. For example, special seminars which we did for Work Pros to get digital architects. Now, digital architects, once trained, are the bosses of future full-stack developers, and therefore they also open doors for us.
So higher technology, higher-end technology programs, using AI, creating a large engagement base, participating in various fora, where we get an opportunity to be visible, including some very proprietary initiatives that NIIT has had over the years, like Confluence, have definitely improved our visibility. Having said that, is that enough? Not at all. But we have to balance that with our ability to service them with our product range, as well as the balancing of multiple other initiatives which are in progress. But thank you very much for your suggestion. We'll definitely keep that in mind.
Thank you, sir.
As far as TPaaS is concerned, the reach is through individual meetings and again, being visible on multiple fora. I think in that we have been a little better, so and certain important clients we were able to add this year, which have contributed to this growth momentum.
Thank you, sir, for the explanation. So my second question is regarding our initiative to enter into new segments. During the quarter, can I please know some details whether we have progressed in this regard? At least some progress has happened in entering new segments. Can you please throw some light on this, sir? Thank you very much. That's all from me.
Definitely, new segment, there is a lot of work which is happening. I think new age programs like AI is one area. ER&D is another space which we are addressing. We do believe that there are certain trends which have to be caught early at the early stage of the adoption curve, and those are areas like decarbonization. In my opinion, is a huge opportunity in future, though its impact will be very minimal. But I think in organizational readiness, I think we would place ourselves little ahead of others, given the significant investment that we also made in EIT InnoEnergy, in the erstwhile NIIT and erstwhile NIIT CLG.
But the benefit of that cooperation will also be available to NIIT Limited, and we are looking for that, as I'm just giving you as one of the multiple opportunities that we have.
Thank you very much, sir, and all the best.
Thank you. We have our next question from the line of Darshan from Crown Capital. Please go ahead.
Hi, good evening, sir. Congratulations on a great set of results. I just wanted to understand, like I'm a bit new to the company, so what is seasonality role, how does that impact us, and why would Q4 not be as strong? Could you just explain that a little? That would be very helpful, sir.
I could hear you very clearly, but let me demonstrate my hearing and understanding. I think your question is, how does seasonality play in StackRoute and details, and especially in quarter four?
Yes sir. Yes.
Yeah. So I think there are two. Let's look at it from the following, the same metrics, two by two metrics that I drew for you. Technology BFSI as one axis, and early career work as another axis. So early career are the most, most available at the time of graduation, are least available at the time of exams. Right? At the time of exams, they are not joining organizations or coming and attending courses. After the exams, and in, therefore, in second quarter, end of first quarter, early whole of second quarter, is when maximum joining happens in organizations and maximum placements happen. So at that time, early careers have a high momentum, right?
Now, whether that is technology, typically very high in technology, because they're new hires just typically join in July, August time frame. BFSI, by and large, works across the years, and first in early careers. By and large, works across the year, except in fourth quarter, banks typically take a pause and to that extent slow down their recruitment and therefore, for us, the training opportunity because of being the last quarter of the year. And to that extent, in the fourth quarter, you do see some softness. On the working pros, similar, three quarters of the year typically is good and is consistently growing.
Fourth quarter, there is a softening because companies are focused on completing their financial year and are not able to free up their people. Those are the roles which play. So I would say quarter four is typically slightly slower quarter. For product companies, that used to be a very high quarter because that's when the maximum budgeting used to take place. People had finished their budget. But in services, where individuals have to spend time in helping the organization to close their year, I think we find a little bit of slowing down in training consumption.
So therefore, fourth quarter is definitely one in which there is a small dip. First quarter, it starts picking up. Second quarter, it peaks. Third quarter, because of festivals and all, it kind of stabilizes. Fourth quarter, there is a small dip. So that's roughly the way seasonality works in our business.
Yeah. Hello. Thank you so much, sir, for the elaborate answer. That was very helpful. And so now if we can see FY 2024, we might expect a bit flattish. So anything, how do you see the recovery maybe playing in FY 2025? Would that be, you know, the growth that we've not been able to achieve in FY 2025 or might come with the spring in FY 2025? Is that the right way to look at it? And what kind of margins can our business do on maybe, you know, when the demand is good, like, what would be the average range of margins that we expect going forward?
Okay. I'm again trying to understand what you just said. First, whether in FY 2025 we see a strong recovery, the answer to that is, I think the strong recovery will. The economic condition of, economic position in the country stands very good. However, the global uncertainty and its impact on the Indian economic condition, that part I will not comment on. But at domestic level, the situation looks good.
And if that happens and on global systems integrators the resumption of hiring happens, then I think we should see good results in FY 2025, because the efforts that we have made in this year will, of course, sustain themselves, and the recovery will sit on top of that. So I think we should see that. The second part of your question was to help me understand, Kapil. Second part of the question, how will the margins work?
So overall, in the business is capable of generating a margin of 15%-20% in steady state. There are parts of the business which are even now delivering north of 15%, but as I said, overall, the business is in an investment cycle. So to that extent, I think, number of initiatives do consume part of that margin, which is all for overall good. You obviously, on top of that, have inorganic opportunities that we pursue from time to time. And I think the cash balance that we have will also get utilized for that.
But overall, on the margin front, at organic level, 15%-20% in steady state is a good mix. And why I use 15-20, if the retail part, which is the consumer part of the business, picks up faster, then you are in for much better margins because economies of scale benefits scale.
Oh, thank you so much. That helps a lot, sir. So, sir, any maybe, you know, three years within that, you know, we would like to share, like, what would be our targeted revenue margin, something that, you know, maybe not a short term, something that we aspire to do. So maybe, you know, an FY 2027, 2026 region. Anything that would be there would be very helpful, sir. Thank you.
Okay. So, this is a question which we have been answering for, I think, now four or five quarters, and, no, maybe more. As we pivoted from a brick-and-mortar delivery model to a full digital model, question was, what is the long-term growth that we see for this business? And we had said that, on a five-year trajectory, which will now end, I think, in 2027, we should see ourselves at a revenue level of about INR 1,200 crores.
The question has also been how, and we said that it will come through the benefits of the investments that we are making in acceleration, in accelerating the, the revenue, adding new products, new segments, new ways of doing business, as well, as, inorganic activity that we foresee in the future.
At this point of time, where we stand right now, this quarter, at the end of this quarter, we are little ahead of numbers, but over the next two quarters, we also see that there will be a bit of softness, even year one hiring has not yet started. We, we don't see any reason for us to revisit the, that projection that we had made. Of course, there is lots of work to be done, and we are at it.
Perfect. Perfect, sir. One last.
Sorry, it is 28. We just start, FY 2028.
Okay. No, no, sir, that's perfect, sir. So just so how much would be inorganic in our maybe, you know, contribution that we are looking forward to? In our target of INR 1,200, how much would inorganic be?
Yeah, see, there are, in the overall strategy as it unfolds, we have a number of folks at which we have to take buy versus make decisions. So it will be difficult to comment on that.
Oh, okay. No worries. So, I think all my questions are answered. Thank you so much for such detailed questions. All the best.
Yeah. But I think you can take about a fourth of the growth will come through, or 1/3-1/4 growth will come through in organic.
Oh, oh, oh, thank you. Thank you so much. That helps a lot, sir. Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phones now. Participants are requested to press star and one to ask a question.
The only addition I wanted to talk about was the fact that the board did consider an interim dividend this quarter. Given that we are still figuring out the next set of questions, I thought I'll talk a little bit about the dividend policy of the company and dividend policy in its earlier avatar and in the coming avatar. From 1993, that the company has been public, we have followed a consistent dividend policy, which is of giving a consistent dividend, which increases slightly every year and which does not vary significantly up or down based on results, because the results can go up and down based on the state of economy as well as many other considerations.
Therefore, over the period of time, we have maintained a consistent track record, which, where dividend on an average has increased by, maybe 5% over previous years, barring some special years when either there was a bonus or something else might have happened. We intend to follow a similar policy, but this is the first year in which NIIT, without the CLG business, which is now housed in NLSL, will be, has completed one year. And in this year, we did want to set up a baseline.
The baseline we have set through the interim dividend of 25% to start with, and then over a period of time, we would see based on the performance of the company and the way the cash is to be utilized, and the most effective way of returning the benefits of the growth and cash balances to our investors, we take appropriate decisions. So that, I just thought is an additional point that I would mention in this call.
Ladies and gentlemen, to ask a question, please press star and one on your phone now. As there are no further questions, I now hand the conference over to the management for closing comments. Over to you.
Okay. Thank you very much, each one of you for giving us your very precious time and participating in today's brief. We did have some very interesting questions, and as usual, the questions contribute to our shaping our future strategy, and to that extent, we are thankful to you for your contribution. We do know it's a busy time for everyone, and for having spared your time for this meeting, we are truly grateful to you.
If there are any follow-up questions, please do not hesitate to contact Kapil Saurabh, who's the single point of contact to answer and to coordinate any meetings or answer any further questions that you may have. So at this point of time, I would like to bring this call to a close.
Wishing you the very best for the festival season, and looking forward to our next set of meetings. Just on a separate note, next week, early next week, on seventh, some of us will be in Mumbai for one of the investor conferences, but we would also be available offline in case somebody wants a one-on-one meeting or any other possibility for any other discussion. So with that, we close this call. Thank you very much.
Thank you. On behalf of NIIT Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.