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Uplifting Service: How NIIT Technologies is Positioning for Growth

NelsonHall recently attended a NIIT analyst and advisor event in London.

If we compare NIIT’s recent topline performance with some other IT services providers who report in Rupees, its revenue growth in FY 2014 of 14%  (to Rs. 23,050m, or just below $400m)  is on a par with Wipro (16%) and Hexaware (17%: of a similar size to NIIT, with Rs. 22,853m revenue in CY 2013), and far outstrips Mastek and MphasiS who are currently addressing company-specific issues. At 15.2%, NIIT’s FY 2013 EBIT margin is comparable to EXL, another similar size vendor.

NIIT recently shared its goal of becoming a $1bn services provider in the next few years. At the event, management outlined a number of strategic initiatives, some of which are already underway. 

In his keynote, CEO Arvind Thakur highlighted that NIIT is half-way through a three year initiative to evolve its service culture. The initiative is part of a drive to help shift employees from a having a mentality typical in a vendor whose proposition is primarily dependent on labor arbitrage to that of a service provider that can help its clients with their digital transformation agenda. This means going beyond the notion of quality as measured by the likes of CMMI (i.e. adherence to standards) and nurturing a service culture in which two clear attributes are proactivity in identifying opportunities for value, and confidence in suggesting innovation or transformation to clients.

Examples provided where NIIT has demonstrated with clients this included:

  • Carey International, a U.S. headquartered limousine franchise company (support in its digital transformation)
  • Aer Lingus, for whom NIIT provided support in an application rationalization initiative, suggesting 12 initiatives as part of the engagement.

In August 2013, NIIT recruited Sudhir Chaturvedi as COO.  He is charged with identifying areas for growth. He summarized that NIIT regards itself as

  • A ‘Champion’ in
    • Transport, Travel and Logistics (TTL): 37% of its revenues come from this sector group, placing it second only to TCS. It intends to continue to build on its capabilities in TTL
    • The London Market, where it has a presence through its 2006 acquisition of ROOM Solutions Ltd.
  • A ‘Challenger’ in
    • Insurance: like TTL, an IP-led approach. One possibility is a partnership with eBao Tech, to take its insurance software into EMEA (Hexaware also has a partnership with eBao Tech, but the focus there is the U.S.). This would allow NIIT to build on both its life and non-life capabilities, leveraging the multi-lingual and multi-currency capabilities of the software
    • Wealth and asset management, leveraging the experience its has gained working with the likes of SEI
    • Media: where NIIT is adopting a narrow focus based on work with TV companies such as Channel 5
    • Continental Europe: EMEA currently accounts for ~37% of total revenues, but this is dominated by the U.K. One major thrust to grow its business in Continental Europe centers on industry-specific ADM opportunities in the airline sector (e.g. additional e-commerce opportunities) and the capital markets sector, possibly building a solution with the client and then looking to commercialize it.

Other strategic priorities include:

  • Growing the U.S. business: in FY 2014, accounted for 42% of NIIT’s global revenues, up from 38% in FY 2013. Recent major deals in the U.S. include a $300m, 10-year renewal (of which ~10% is new business) with its largest client, and two $25m wins, one in insurance and one in financial services
  • Growing its Infrastructure Management Services (IMS) business: IMS accounted for ~13% of FY 2014 revenues, up from 12% in FY 2013.  Among other things, NIIT is looking to develop its “soft” data center outsourcing operations (OS and above) and is interested in opportunities around DevOps and monitoring
  • With ADM (its largest business), continuing to drive agile across its operations,

NIIT’s size has worked to its advantage on a number of outsourcing deals. Presenting at the event was Eurostar, whose selection of NIIT for an IT infrastructure management contract was based on factors including its size and perceived level of ‘attentiveness’ – which it delivered on. This contract began with the outsourcing of IT services in France, Belgium and the U.K., where NIIT was able to provide training and fill gaps of knowledge of internal staff, creating a more efficient process.
 

Our takeways from the event are that NIIT provided several client references where it is acting more as a services partner than as a pure labor arbitrage provider, that it is evolving a clear strategy for future growth in many parts of its business that spans internal culture, partnerships, IP and portfolio and, to an extent, go to market. Over the next year, we expect to see some interesting developments in some of these areas.  we also expect to see a niche acquisition to suppport one of the strategic priorities: it is nearly three years since NIIT acquired Madrid IT firm Proyecta.

Overall, we believe that NIIT is likely to enjoy double digit organic growth and improving margins over the next few years: it is approaching relevant market opportunities with a combination of IP-led offerings (as are other vendors) and a service culture being nurtured that could be a differentiator.
 

Thakur described NIIT as "one of the new challengers". In this spirit, NelsonHall would classify NIIT as one of a small group of Indian services providers we call ‘WHEN’, (WNS, Hexaware, EXL, NIIT) that are similar in size, have some commonalities in their vertical target markets (including insurance), and all have a goal to demonstrate innovation and quality in their client engagements. Calling the group ‘WHEN’ would appear to beg a question (perhaps “when will the first of this group be the first to reach $1bn in revenues”) but that is not our point: it is  simple acronym of an interesting set of service providers that are worth watching closely over the next few years.

Fiona Cox and Rachael Stormonth

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