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NIIT Tech sees better Q3 on margins, BFSI

Wednesday, 15 January 2014 - 9:39am IST | Place: Mumbai | Agency: DNA

NIIT Technologies, the Mumbai-based mid-tier software company, on Tuesday reported a 5.3% year-on-year decline in its consolidated net profit at Rs 53.1 crore in the December quarter, which is a typically a slow three-month period for IT firms. 

Forex losses of Rs 7 crore, in some part due to rupee appreciation of 1.3%, and hedging loss of Rs 8.3 crore also impacted the net profit during Q3.

However, the silver lining was a 7.9% growth in the US business, which contributed  44% to the revenues during the quarter.

The banking, financial services and insurance segment (BFSI) too expanded 8.2% sequentially, comprising 35% of revenues.

The company also secured its single-largest deal in the reporting quarter — a 10-year BFSI contract valued at $300 million deal from a US-based client.

The US and BFSI gains follow the appointment of ex-Infosys senior vice-president and head of financial services, Americas Business Unit, Sudhir Chaturvedi as NIIT’s first chief financial officer in August last year.

Experts said Chaturvedi’s rich experience in handling global sales and delivery in BFSI segment for Infosys in the US also contributed to NIIT scaling up its business there in Q3.

Overall, NIIT Tech saw services revenues growing 4.3% sequentially, aiding operating margins of 16.3% in Q3 against 15.1 in Q2. NIIT management said operating margins are expected to improve by 100 basis points on an annual basis, going forward.

Arvind Thakur, chief executive officer of NIIT Technologies said, “The USGDP has grown up 4.1% in Q3, as compared to 2.8% in Q2, which has aided in increased services growth for Indian IT companies, like NIIT.”

However, revenues from Europe remained flat with 37% contribution to revenues in Q3 (4.5% sequentially from EMEA (Europe, Middle East and Africa), due to UK GDP growth of just 0.8% and slow recovery in Europe. Thakur believes Europe growth will continue to remain flat in Q4 as well.

Among other segments, travel & transportation grew 2.3% sequentially, accounting for 38% of total revenues, while manufacturing/distribution and government contributed 7% and 6%, respectively.

New service lines revenues – including social, mobile, analytics and cloud grew 24% -- up from 20% in Q2, and Thakur expects it to reach 25% in the fourth quarter.

Consolidated revenues rose 14.2% to Rs 587.3 crore as against the year-ago period.

Manik Taneja, IT analyst with Emkay Global, said, “NIIT Tech reported revenues at Rs 587.3 crore flat QoQ, lower than expectations.

However, note that this is on account of lower hardware revenues (Rs 23 crore versus Rs 47 crore in the September quarter).”

The company’s India business grew 11% in the quarter, mainly on account of government contracts.

Thakur said domestic business is challenging, as “payments are linked to milestones, which puts more receivables (or outstanding payment) on our books, which hurts margins.”

However, he believes Q4 will see better domestic growth.

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