NIIT Limited (500304) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the NIIT Limited Q2 FY '22 Earnings Conference Call. [Operator Instructions] 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, and thank you very much, everyone, for joining this call, which is in this busy results season for you to give your time for us, really 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 '22. This is a quarter ending September, though there have been some events which have happened on the 1st October as well, which we will cover. But 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 was -- 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 last so many years. Very healthy order intake and contract intake that we have and very strong revenue visibility. And also a very strong margin, much better than what we had projected. And my colleagues here will take us through that. But it's also significant because for the last 18 months or so, one of the businesses has been under transformation. And I think we are now gone through that transformation exercise, and you can see the bump up, which that revenue has -- that business has experienced in this quarter, and that's another thing. So this is a quarter in which both businesses have done reasonably well. And that's what we will take you through. We -- the event that I wanted to mention about, which has happened on 1st October is that we added another member in our family, and that is accompanied by the name RPS Consulting, which we have acquired, and 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 Board. So I have Mr. Rajendra Singh Pawar, who is our Chairman; I have Rajendran, P. Rajendran, the Joint Managing Director; Sapnesh Lalla, who is the CEO and Executive Director, will be leading this discussion. And then 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 CorpCom and the other parts -- members of the finance team will help us with other set of numbers. We'll, as usual, keep it into a short briefing of fully Sapnesh and then open it up for more detailed Q&A. So 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% Y-o-Y and 4% Q-o-Q. Both the Corporate business as well as the Skills & 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, which was done on the 1st day of October. And their numbers will start consolidating from Q3 onwards. Our EBITDA stood at INR 739 million. It was up 115% Y-o-Y. 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-on-year. The EPS was at INR 3.9 per share versus INR 1.8 last year. Talking a little bit about the Corporate business. CLG achieved a growth of 40% year-on-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. So 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% Q-o-Q and up 4% Q-o-Q on a constant currency basis. The EBITDA was at INR 786 million. It was up 97% Y-o-Y. 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 6 new MTS customers. It's probably the highest we've done in a quarter. 2 of those customers were a large FMCG logos, 2 large BFSI logos and 2 well-known specialized consulting brands. 2 of the -- the 2 BFSI customers were in the past project customers who signed up as MTS customers. The tally of MTS customers now stand at 63. And the revenue visibility is at INR 294 million at the end of second quarter. The margins improved owing to a 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, from -- and 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-20s this year. Coming to the Skills & Career 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 TPasS product lines. We pivoted, as you are aware, to our 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 pointed out earlier, we see this business as a strong ed tech platform for digital talent transformation, for both individuals and corporates. And 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 SNC 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 accreted from Q3 onwards. The RPS business has a run rate of about INR 26 crores to INR 28 crores per quarter and is growing with margins in high teens. The business -- the RPS business, as mentioned earlier, provides training in emerging digital technologies to working professionals, a segment which has seen 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 center set up in India as well as most Indian enterprises. So we expect the addition of RPS to be deeply synergistic with what we are doing. Between StackRoute and RPS and the enterprise business in India, we have very strong coverage of the global system integrators that are enablers of this digital transformation from most global corporations, the global capability centers set up in India. We 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 6 quarters across both its businesses, digital transformation being primary. CLG now is a top 5 global player in managed training services with industry-leading growth, margins and return profile. The target market provides multiyear growth opportunity due to the large spends and low penetration that learning outsourcing businesses had at this time. Skills & Career business is transitioning into a net tech 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 that 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 30 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 base. The 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.

[Operator Instructions] The first question is from the line of Vimal Gohil from Union Asset Management.

Yes, and many congratulations on excellent set of numbers. Sir, my first, I just -- one clarification. My line was not clear. On the outlook for the CNG business, if I have heard you right, you expect the revenue growth for FY '22 to be 30% plus and the margins to be somewhere in mid-20s, right?

That is correct.

Okay. And I think you also -- again, please correct me if I'm wrong. You also gave out the long-term view that this business could grow at about 20%. And with -- and I wasn't sure of the margins that you've, if at all, you highlighted them for the CLG business.

Approximately 20%.

That's the long-term growth...

That has our stated long-term direction of 2020. That is our stated long-term direction. So we are not changing that right now.

Okay. So you want to grow at 20%, 20% and 20% margin. Fair enough. And just on the Skills & Careers business, sir, 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? And 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 can just highlight that?

I think that's a good question. I think the size of the industry is massive. If we just look at the folks working in the IT sector, that's greater than 4 million. About more than 1/3 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. So 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. So I think that represents a significant opportunity. Given the ongoing war for talent as India starts to invest in growth, as Indian enterprisers 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. So 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 are we and how we set aside from our competitors, I think the core differentiator NIIT has vis-a-vis competition is our pedagogy, our digital platform and our ability to create real outcomes when a person goes through our training. And that's the reason why many brands trust NIIT for training some of their key professionals, some of the key new hires as well as hiring from folks who valuate out of NIIT program. So that's really our 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. So while we made some investments, I guess, the term massive might be overstated.

And 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 a hybrid model. And I think that is the transformation which Sapnesh was referring to, and even I alluded to a bit earlier. But otherwise, it has a very, very strong brand appeal and very strong trust and recognition and consent dealing with customers.

Right, right. So sir, a 2-part question related to Skills & Careers. Given the fact that most of it -- most of the business that you're doing is Skills & Careers is in India, does that -- would that entail a higher working capital requirement? And the second part to it is -- I mean, we've grown extremely well this quarter on a Y-o-Y basis, albeit that is on a lower base. But at what revenue levels are we looking to sort of breakeven in this? And any sort of margin guidance that you would want to give for this particular business as well? That is on Skills & Careers, and then I have one last question on CLG business after you complete that.

So we expect to continue to grow on a quarter-on-quarter basis in general terms from an SMC perspective. We expect that we will close this year with growth, which is upwards of 40% for the year compared to previous year. So that's a growth projection. And then the addition of RPS will add another INR 26 crores to INR 28 crores in terms of revenue for quarter.

Sir, the RPS acquisition will be a part of the Skills & Careers group, is it? And not on CLG?

That's correct. That -- they transact most of their business in India.

Okay. So it will be a part of Skills & Careers...

It is going to stay as an independent business. It's going to stay as an independent business, but we will report it as a line item under the Skills & Careers.

Okay. Got it, got -- fair enough. And that itself should probably improve the margin profile of that particular segment, right? Because mathematically, if you are looking at an EBITDA positive company joining their clientele, that should improve the EBITDA margin for the Skills & Career business, right?

Indeed. Indeed.

Yes, it's accretive.

Yes.

Right. And last question on the CLG itself. You spoke about outsourcing penetration level. We are hardly at 2% odd, if I'm not -- and 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 '18, I had read somewhere that it was about 1.6%. That's come to 2 now. And so where do you see this outsourcing spending as a percentage of total learning and development spend going in the longer term?

So I'm curious where you got the 2%. But I think from what I know of the numbers, about 20% to 25% of the Global 1000 corporations have outsourced their learning in any significant manner. So while 98% shows significant headroom, so does 75% to 80%. But I think the right number would be 75% to 80% headroom. And then even the ones who have outsourced have a fair bit of room to outsource. So from a headroom perspective, very significant headroom available.

The next question is from the line of Samarth Singh from TPF Capital.

In terms of RPS, I think someone mentioned that it's EBITDA positive. Have you given the EBITDA margin of the business by acquisition?

It's in the -- we expect, on a continuing basis to be high teens.

High teens, okay. And is this -- could you talk a little bit more about the acquisition? Why was this a good acquisition for NIIT? And can it be as transformational for SM -- for Skills & Careers as the Eagle Productivity Solutions acquisition was for CLG?

So thanks. I think it's a very good question. I think 2 real dimensions or maybe 3. 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. And like I was pointing out in an answer earlier, that audience is about 4 million working professionals in just the IT sector. And then as you go beyond the IT, there are a number of IT professionals within different working professionals as well. So 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 amongst the global capability centers. So 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. And 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. And that's the market segment that has among the highest levels of spends on training across the Indian enterprises. So that's the second reason why we think it makes sense. The third reason is RPS comes with significant -- with partnerships with significant technology originators. So organizations like Microsoft, organizations like Red Hat, organizations like AWS, Google, our partners with RPS. And we expect that strengthening NIIT partnerships with these global technology originators would do NIIT good. So a number of positives in that acquisition.

Okay. And any synergies between our current SMC business and RPS to have our the current business turn EBITDA positive?

Yes, very complementary. Like I mentioned, the India SMC business, the predominant audience focus is early careers. And with RPS's 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. So a lot of complementary skills and therefore, very synergistic.

Okay. And on CLG, would you be able to tell us what is the, I guess, customer concentration in terms of either top 1 or top 3 customers?

So what is the customer concentration -- I mean, give a little bit color on, what you are seeking?

Percentage of revenues.

Revenues only. I would say less than -- about the top customer would be above 10%, 12%. The top 3 would be a shade below...

He's referring to CLG?

Yes.

It's about -- the top 10 are in the 60% range. The top 15 would be about 67% range. The top 20s would be in the 75%, 76% range. I would also want to add that 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 and so forth, FMCG and so on.

Right. Right. We constantly...

Even the diverse set of [indiscernible]

We constantly -- we've been highlighting sort of a very heated Canadian real estate market. And there's something that should been put down over a period of time. My question is, if I look at the -- my first question is, are we only involved in as far as RECO is concerned in new broker training? Or are we also -- do we derive revenues also from continued training for these brokers?

So we focus on the new sales agent as well as the broker segment. So those are the 2 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. So from the RECO, I mean with data available, it seems like the number of new sales region has been fluctuating between 9,000 to 11,000 a year. So and that's since 2017. So why is it that we keep highlighting that? This is a excessive number of -- or other heating market in terms of number of agents that we are trading in the year.

See. I think the part about heated market is more to do with seasonality and to some extent, to do with the 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. And 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 out and so on and so forth. So taking 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. And therefore, it resulted into a few spikes. But if you were to look at sort of secular data, your data is right. Every year, the market adds about 9,000 to 10,000 new -- net new agents to the pool of agents, which I think is about 90 or so thousand.

The work in progress, there's a lot. It means the students who are undergoing, who take breaks. They do 2 modules. They take a break. They do 2 more modules. So therefore, the total students on roles will be different.

Yes. So yes, 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. So my last question, and it's around -- this is -- I [ came to know ] across the recent data point, which is that Canadian residential real estate as a percentage of nominal GDP used to hover about 6%. And today, it's at 10.5%. So assuming that things have worked to the mean -- I'm sorry?

Say that again. I couldn't clearly follow the data points that you were using.

So it was data point, which is on...

No, I also recommend. But if there is more details required, we can discuss it offline because I think there may be others who are waiting for their questions. So if you don't mind, or we can come back if after -- in the end again, normally, there is time when people have run out of questions. So we'll be happy to answer all questions. We don't like to leave any unanswered, but I just thought -- fair enough, fair enough, thank you -- from other people.

The next question is from the line of Sangeeta Purushottam from Cogito.

Congratulations for a great set of numbers. I actually wanted a little more color on the transformation, which is happening in the Skills & Careers group -- 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 plan -- for 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. But whether it's going to be the same 1 year down the road, it's hard to tell. But at this time, 100% of that business is digital. I think your second question was around what is -- what might be the split between the business that is transacted on behalf of corporations versus on behalf of individuals. The flip right now is, I would say, about 1/3, 2/3 in favor of corporations, more specifically because of the acquisition of RPS. So if you look ahead, it'd be about 1/3 in individual and 2/3 corporate. But given the investments and the brand that we have, we expect to gain some parity between these 2 as we look ahead. And now I'm missing a couple of the last questions that you answered.

Yes. My last question was that -- yes, my last question was on the margin profile. By when do you think that the Skills & Careers business will actually, a, breakeven? And what are the long-term margins that we -- you are targeting in this business? And by what timeline?

On the Skills & Careers, the Skills & Career business should start seeing some level of profitability in the coming quarters. And 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. So I think from a breakeven perspective, we are pretty close to breakeven from a Skills & Career business perspective. In terms of long-term margins, we should -- or we are aiming to hit a 20% margin business as we hit -- start hitting steady state.

Right. Okay. And 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. And our Corporate business has the ability to bring all the capabilities of our SMC business to our corporate customers, and we routinely do that. So 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 is, we -- our gross NIIT will leverage all capabilities that we have, so that we can benefit our customers globally.

The next question is from the line of Shradha from AMSEC.

Congratulations to the management team on a great quarter. Most of the questions have been answered, just a few questions, Sapnesh. What is the proportion of StackRoute in our SMC business currently?

See, we don't go into individual line items, but I would say that it is upwards of 60 -- yes, about 64%, 65% total.

StackRoute and TPasS.

Yes. StackRoute and TPasS together are about 65% of our SMC business.

No, why I'm asking this is because I thought probably based on commonality between what RPS offers and what we already do under StackRoute. So from a complementary portfolio perspective...

They are complementary. So the commonality is that they both address IT professionals. But like I pointed out earlier, the StackRoute business focuses predominantly on early career segment, and the RPS business focuses predominantly on the working professionals.

[ That's right ]. And secondly, you did indicate that you're looking at long-term 20% margin in SMC. So do we expect to hit this kind of a margin say towards the latter half of '23 or is it a '24 kind of a phenomenon that we are looking at 20% kind of a margin?

'24.

Great. And secondly, on the CLG business, how should we look at the RECO deal? I guess that you had kind of hit the pace in 4Q and/or probably 1Q. So from the current base, which has already been some moderation, do we expect a further moderation in volumes from RECO in the next coming quarters?

See, 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. And as one of the other callers mentioned that the real estate market adds about 10,000 agents every year. Now like I pointed out earlier, there could -- COVID accelerated some of that. Things might normalize. But as we move forward, so 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 this [indiscernible] because I assume RECO is a very high-margin business, sir. So if you see some significant compression in volumes from RECO, then it might impact the overall margin structure of our CLG business quite considerably. From that perspective, I just wanted to check the -- is this in the base already? Or are we looking at further cool off in RECO deal volume?

See, 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 to 10,000 real estate agents every year. And that's been so for the last 7, 8 years. And 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.

Yes. And similar to what we do in RECO, we are also looking to get into other real estate markets in other countries. So have we seen any breakthrough in the [ manifest large streams ]? Or the -- are we in -- on this [ regular ] discussions anywhere?

We are continuing to look at opportunities, not just in real estate, but other license to operate categories of work. And as soon as we have something material to report, we will talk to you about it.

Thank you, Shradha. Thank you for joining and be very regular on our calls. Appreciate that.

The next question is from the line of Ashish Aggarwal from Principal India.

[Technical Difficulty] Two things from my side. On the CLG side -- Sir, 2 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% plus going forward, that will be really a [indiscernible]? And then secondly, on the CLG side, last 3 quarters, we have seen our revenue visibility remaining at the $290 million level. So just wanted to understand the reason. Is this something some client laws, et cetera, which is impacting that number?

So maybe I'll address that first and then just remind me what the first question was. But we haven't seen any customer losses. However, given the growth we have consumed more quarter-on-quarter, which lowers the visibility. And 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 contract. We have a few large contracts coming up for renewal over the next couple of quarters. And as those contracts renew, and we expect that they will renew favorably, we'll see an improvement in visibility.

Got it. And sir, my first question was regarding in the CLG side, has something changed structurally post-pandemic? Has pandemic changed something on the corporate side, where they want to accelerate the learnings of for their employees and are more amenable to now outsourcing that piece of training, so to speak?

So we haven't won the post-pandemic time frame as yet, at least that's my belief so far. It might -- we might get into that period sometime next year. But at this time, we are not post-pandemic. During pandemic, there has -- 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 are 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.

[Operator Instructions] The next question is from the line of [ Ronak Vora ] from OHM Advisors.

Congratulations on a good set of numbers. Sir, I have 2 questions, mainly on the CLG end. The -- firstly, 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 increased revenues from existing customers that has more mining from them? Or is it the new deals that are ramping up for us?

I think it's a combination of the 2. 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 have won over the last few quarters.

Basically, we can say that are we -- is basically the growth coming from the newer verticals that we are entering or the existing vertical? Or can you just throw a picture in terms of what kind of verticals do we see this whole 20% sustainable growth from? Is it just IT, health care 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 out of 30%. So our portfolio is fairly diverse, and we expect growth to come across different verticals.

Okay. And lastly, the revenue visibility has been fairly constant in the CLG business at around INR 218 million to INR 219 million. So are we seeing any lags in closing all these large deals? Or how is that -- 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, the -- 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 -- just -- then a clarification point of view, our revenue visibility should be equal to new contracts, less contracts, which are work in progress or under execution. That is how...

Yes, over the period of time.

Over the contract duration.

Yes. And it reduces as the -- if it's a 5-year contract and 3 years are over, then only next 2 years visibility would be there unless it's renewed.

Okay. So under its -- execution of a contract for a year if completed, that's deducted from a revenue visibility, right?

Yes. Every quarter.

That is correct.

So 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.

The next question is from the line of Samarth Singh from TPF Capital.

I was just -- I think a previous participant also touched on possible margin compression due to reduction in growth in terms of the RECO deal. So this -- the point I was making was that if you look at the average value of Canadian real estate investment as a percent of normal GDP historically has been about 6%. And in 2017, it has been rocketing up into is at 10.5%. So in case it reverts back to mean 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 protect our profitability, if there's a significant deceleration in the business, in the RECO -- in RECO business?

Yes. See, RECO is 1 out of 63 customers that we have. It's a significant customer, and it enjoys significant profitability, but it's 1 out of 63 customers that we have, and we are continuing, like this quarter, we added 6 customers. So we are continuing to add new customers. In terms of compression-related risk, there could be. Real estate market is a cyclic market. It's enjoying a significant high at this time. And 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 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. It's just that when prices are high, they're paying more money. But the buying and selling of homes continues to happen. And that's why, I think you were saying earlier, as you were saying earlier, the year, 9,000 to 10,000 real estate agents become certified. So I think while there is interest -- while prices are up across all of North America in terms of real estate. But 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. And in a buyer's market, there might be 10 buyers to 1 seller. In a seller's market, there could be 10 sellers to 1 buyer. But either you are a buyer or a seller, you have to engage with the real estate agent.

Got you. That's very helpful. And just 2 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. And as we pointed out, the acquisition happened in October.

Okay. Great. And the last one is what should we expect as 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 -- it's very huge and very little is given away. So I don't think more than what?

1 or 2 percentage points.

Not -- no, no, 1 or 2 is very high.

So it's -- yes. In terms of -- no, not dilution. Yes.

No, no. But you're saying as people exercise. I think more people might have exercised in recent times because of the spike. So I think you have our fully diluted EPS also available. If not, we can give it to you fully diluted EPS.

No, I would just -- as a [ general policy ]...

Kapil, do you have fully diluted EPS available? Kapil there?

Yes, Samarth. I'll send it to you. Yes. It's anyway is there.

We will share that with you.

No, sir. I wasn't talking about the full year diluted EPS. I was -- as a policy, what percentage of our shares outstanding would we expect to pay out every year going forward?

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, proper data. Let's give you proper data.

The next question is from the line of [ Vikram Dogra ], an individual investor.

Yes. Congratulations for excellent numbers, sir. So my question is more of a shareholder with a futuristic thinking is that -- I had 2 questions. One is that India's new education policy. So how are you kind of participating in that India story? What is your vision on that? And 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? So these are 2 questions I have.

I think the first thing I would want to say is we are 100% digital at this time, not 100% physical. 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. And it's physical. Yes, yes. Right. Right. I understand that, sir.

So just to give you a historical perspective. First of all, the company has existed from 1982. There was an element of technology-based learning even from day 1. So -- but predominantly physical and 25% to 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 opened because of regulation. And so 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. So that's perhaps where it will.

So that leads me to one more thing, which I would like to understand is that with the newer kind of universities, which are coming and NIIT University is also there, although might not be in this company. But that -- 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 having the training the consumers to younger India?

So let me explain to you. I think the universities, the universities' shelf life or the contents shelf life with the university is larger. The average lifetime of content is reducing very dramatically. So what happens is that every university, anywhere in the world, anywhere in the world, needs top-up professional skills training, which is big skills in the area that the university would train -- would educate them on. So just a fundamental difference between education and training is education is more broad-based, but not as deep. And training is when you go very deep with a certain set of skills. So this is a supplemental area to formal education. What new education policy will do is provide a lot of flexibility and multidisciplinarity and would create spaces for this deep skills training also to become a part of the formal curriculum. And there, I think universities would also benefit from NIIT's intervention and NIIT's contribution.

Right, sir. Sir, that answers my questions 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 physical edge would probably -- a hybrid model would probably kind of to let run, it could have helped us, but that's very, very premature. I mean, it's just a comment.

[Operator Instructions] The next question is from the line of Rahul Jain from Dolat Capital.

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.

Congratulations [Technical Difficulty] performance. Just I wanted to [Technical Difficulty] Yes. Yes. I said congratulations. And my question specific is to in terms of understanding the broad prospect of the CLG business, I'm sure you might have said something earlier, which I could -- I might have missed. But what I essentially want to understand, and I understand your constraints given the kind of a major shift this business has seen in last couple of quarters. So it is difficult to capture it very precisely. But the kind of a new client addition that we are seeing -- the kind of [indiscernible] opportunity we have from client budgets, which can make it some kind of types of point of time. What kind of the 2 to 3 or 5-year kind of a goal we should have in this business from a growth perspective? And also our margin view has been very conservative as we kept on delivering [indiscernible] staying in the past. So how one should see it from both short-term and long-term perspective?

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%-plus growth and the margin in mid-20s for this fiscal year.

Yes. Yes, of course. You have said about this earlier I think. I'm just now trying to understand. So it's not -- no time to think about it, but I think the guidance was [ in fact 23 or 22 ]. And you think, as I said, but some of the benefit is, one is that you may have more demand from the same customer. And we are seeing a significant jumps in the total customers that we are servicing. So could we, let's say, from a [ linear ] perspective want to -- can we aim for the much higher growth and much better margin that [indiscernible] with that we are of kind of a negative?

That is our goal. But what I pointed out is what we are able to see at this time.

Right. So I think that you can do it, but from a more steady-state business, this is the -- that gives a more [indiscernible]

That is correct, from a long [ profit ].

The next question is from the line of Vimal Gohil from Union Asset Management.

So just wanted to check on when we are sort of growing our -- looking to grow our SMC business skills and careers business rapidly, does that have any implication -- and that too with profitability. So 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 sort of grow that business rapidly? So will that growth come at any small cost in working capital is what happened to understand?

Not very material, but maybe marginal, but not very material.

And that would be because of a large -- because, again, it's a B2B sort of a business. Maybe that's what, right?

No. It's not because it's a B2B because it is a balanced business where retail customers pay in advance. In fact, you -- in this business, we have seen in the past a negative working capital. So it is definitely not put a -- no, no, 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, but now that part is not there. So it's not capital intensive, just to make it simple for you to understand.

Right. But there are no risk on higher payables in -- higher receivables over there as against our overall business?

No. I would say very comparable. If at all, it is plus/minus 1 or 2 days here or there.

The next question is from the line of Ronak Vora from OHM Advisors.

Sir, on the margin end, sir, since we are going more on cloud, more on digital and with existing ramp-up of our own customers, which will happen or increased wallet share from our existing customers, don't we see that our margins should see operating leverage benefits when you're guiding 20%? Is that very conservative on your end? Or we should do upwards of 30% margins also going ahead?

Yes. I think I have 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've made in sales and marketing as well as capability creation. And those investments are continuing. So 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 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. So that should lead to a much higher growth that 20% if you're trying to saying in the manner that you're saying?

Yes. 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. So just from a business as usual perspective, it would not be right to expect 30% margins going forward because travel will start, user facilities will start. And a number of these customers will expect to meet with us face-to-face or get trained face-to-face. So 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 cost and everything, and that is true for all IT companies to be very frank. But what I'm trying to understand is with -- say, if you...

Let me pause you there. 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 3 days or 5 days, whereas an IT engagement goes on for many months. So it is a very different business. But I didn't mean to interrupt your question, but I did want to point out that the training business and the IT businesses are 2 different businesses. Go ahead with the question.

Okay. So what I'm trying to say is, one, say, we've added a new client to our portfolio and say, he has like, say, quarterly training program or a 6-monthly training program or whatever, is this kind of repetitive business every quarterly? Does a training program for all the freshers, the [ DIers ] or for the mid-level managers to reskill or whatever it may be. So once our training program is fixed for 1 customer, say, a large customer, so can it not be replicated? Like 70% tenant 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 our customer. And these are nontransferable. 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 [ limited ]. Now how one company does it versus another company is very different. So there is little reuse in that, which is unlike what a catalog streaming provider like a Skillsoft would do where they would invest in creating, let's say, of course, in -- or a 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 just added a new oil exploration company, and in the first year, we have developed courses for them for the mid-level freshers and all types -- all level of hierarchy for learning and corporate training. Suppose for the mid-level or the lower level guys or [indiscernible] you introduced a course, how to drill an oil well or how to do the analytics of data. So can it not be replicated for the same oil company n number of time for n number of training programs that they do throughout the year? And 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. So while I understand what you're saying, but from a practical perspective, that part is not material.

We can always discuss more if you would -- when we meet all on another call. I'm just being mindful of time because we asked for a 10-minute extension and even that is over. I think there are still some questions left from people. Are there any? Operator, are there any people?

Yes, sir. We have one in queue.

Okay. So that's the last question, please.

Sure, sir. Ladies and gentlemen, we take the last question from the line of [ Ganesh ], an individual investor.

Congratulations for a great set of numbers. All my questions are answered and all the best, sir, for the future partners.

Thank you very much. Yours was the best question. Okay. Thank you, Ganesh, for joining us. Operator, we are done with all the questions. I think we can wrap it up now.

Sure. Sir, any closing comments you would like to add?

Okay. Yes, I just want to thank everybody for a very spirited discussion, and I think there is a lot of good questions. And as usual, I would like to state that every question of yours does rate -- gets us to think. And not only do you benefit from the answer, but we benefit a lot from your question. So 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 wishing 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.