NIIT sells US firm ElementK for $110 million

In what could unlock its intrinsic value, IT training company NIIT on Monday sold its online learning products business unit ElementK to Ireland’s Skillsoft for $110 million (Rs538 crore) in an all-cash deal.

It had bought the US-based firm for $36 million in 2006.  The acquisition was fully funded through debt. NIIT said proceeds from ElementK’s sale will be used for paring down its `350 crore debt to bring down the company’s interest burden.

Thus, analysts said, the deal would be EPS neutral in the current fiscal. 

“A $110 million value ascribed to ElementK clearly establishes the inherent strategic value in NIIT’s corporate learning solutions business. Given the ongoing uncertainties in the macro economy as also the muted growth of 5% achieved by ElementK in the last five years, we see immense merit in NIIT’s ability to unlock superior value from this deal,” said IDFC analysts Nikhil Vora and Swati Nangalia in their note to investors on Monday.

Surendra Goyal, analyst from Citi, shared IDFC analysts’ views. “We expect significant upside to the company’s stock in the near term.”

Analysts believe NIIT has been able get good valuation for ElementK, which had been a drag on its business since it was acquired. “NIIT’s financial performance hit a low after the acquisition. It was a drag on the company. In fact, many thought NIIT will never be able to sell this unit. The fact that they have managed to sell it for $110 million is very good for the company,” said an analyst with a local brokerage, who did not want to be named.

Srishti Anand, an analyst with Angel Broking, said the sale will help NIIT improve its margins. “ElementK Corporation was a low margins business. The restructuring will help NIIT improve its Ebit (earnings before interest and taxation) margins. With ElementK off its balance sheet, NIIT will now be able to focus on individual learning solutions (ILS) which will give better margins,” he said. ILS enjoys a healthy margin of 18% against ElementK’s margin on online learning products business of 8% till last quarter.