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Edited Transcript of NIITLTD.NSE earnings conference call or presentation 24-Oct-19 10:00am GMT

Q2 2020 NIIT Ltd Earnings Call

Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of NIIT Ltd earnings conference call or presentation Thursday, October 24, 2019 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Sapnesh Kumar Lalla

NIIT Limited - CEO

* Vijay Kumar Thadani

NIIT Limited - Co-Founder, Vice Chairman & MD

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Conference Call Participants

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* Devanshu Bansal

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Nisarg Vakharia

Lucky Investment Managers Private Limited - Analyst

* Rahul Jain

Dolat Capital Market Pvt. Ltd., Research Division - VP of Research

* Sangeeta Purushottam;Cogito Advisors;Analyst

* Shradha Agrawal

Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the NIIT Limited Q2 FY '20 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.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [2]

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Thank you. Good afternoon, everyone, and thank you very much for joining us on this call, which is to discuss the quarter 2 business performance and future direction, mainly. But in addition to that, we would also take you through some of the progress that has been made on the buyback arrangement that NIIT had announced on 10th of August. And also, the impact of the recent changes in income tax rules and how they have affected NIIT. And as mentioned before, there were -- a special committee was set up by the Board, which was to give recommendations and on a certain topic. And we'll discuss that progress. Part of those recommendations have already been implemented and Sapnesh will take us through that as he talks about the quarter 2 performance. But I think more interesting would be right now to discuss the business performance.

So I hand you over to Sapnesh Lalla, who is the CEO of the company. And also with me are the senior leadership team of NIIT Limited. And we will all be very happy to address questions after his addition. So over to you, Sapnesh.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [3]

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Thanks, Vijay, and thanks, everyone, for joining this call. Please note that the analysis that I discuss will be on a year-on-year basis. Also, in line with our earlier stated strategy to reduce exposure to low-margin capital-intensive products and services, the business of our 100% subsidiary NIIT Yuva Jyoti Limited, has become very small. And to simplify operations of the subsidiary, we are going to discontinue the subsidiary's operations.

All of its commitments, including commitments to customers, to various stakeholders will be honored by NIIT. In view of that, the business has now been classified as discontinued operations. And in accordance with accounting standards, the net impact of this business is now reported under the head profit and loss from discontinued operations. The previous quarter's results have now been reclassified for a like-to-like comparison. I wanted to make sure that you were clear about that before we get started and dive into the results.

In terms of highlights, our revenue is up 5% on a year-on-year basis at INR 2,365 million. Our EBITDA is at INR 254 million, and the EBITDA margin is at 11%. Our profit after tax is at INR 2,093 million. This includes a reversal of a provision for tax related to the NIIT technology transaction as a result of the recent changes in the tax code. For our business the key highlights were, we added 2 new managed training services customers in this quarter. One, a very large semiconductor manufacturing company; and second, a large transportation association.

The visibility is now at $250 million, it's up 11% Y-o-Y. In our Skills and Careers business, our StackRoute and TPaaS initiatives continue to show a robust growth.

From an individual specific corporate business perspective, the business is back on the path of growth after about a couple of quarters of muted growth. The revenue of the business -- of the corporate business stood at INR 1,740 million, up 8% Y-on-Y and 14% on a quarter-on-quarter basis. In constant currency terms, the revenue is also up 8% Y-o-Y.

The 14% quarter-on-quarter increase in run rate was contributed by revenue from new customers that were added in Q4 and Q1, increased volume from our existing customers and also plus education program delivery launch of the programs we built for the Real Estate Council of Ontario. This is a project that we've been working on for the last couple of years. And our Q2 was the first quarter in which we saw revenue from this project. This is -- as it was scheduled about 2.5 years ago so the project has been on schedule and has met our expectations from a program launch perspective.

Our business continues to attract new global companies as customers and our customers continue to be among the top 5 to 10 companies in their category. This is also reflective of the 37 Brandon Hall Awards that this business won this past year of this past quarter. This is the maximum number of Brandon Hall Awards we have won. Brandon Hall Awards are considered the Oscars of learning and development. And if you were to look at the percentage of awards we won, we won about 6% of the total Brandon Hall Awards awarded this past quarter. So that really tells to us and hopefully to you as well that, a, the excellence in quality that we deliver is not just recognized by our customers, but also it is recognized by industry leaders who judge these competitions. Second, the Brandon Hall Awards and the categories of Brandon Hall Awards, where we have won, show that we are creating positive and substantial business impact for our customers. So that was really happening to note.

Further, like I pointed out earlier, we added 2 managed training services customers this past quarter. And the visibility, as of September 30, stands at $250 million. It's up 11% Y-o-Y. The EBITDA of the corporate business is at INR 271 million, up 14% Y-o-Y and up 21% quarter-on-quarter. The EBITDA margin is at 16%, and it's up 86 basis points on a year-on-year basis.

With respect to our Skills and Careers business, the revenue was at INR 582 million (sic) [INR 583 million]. As stated earlier, we continue to rationalize product offerings in line with our stated goal of moderating our exposure to government contracts and low margin products. Given the continuum of some of these product lines and go-forward SNC business grew at 4% on a year-on-year basis. The go-forward business constitutes 97% of the SNC business.

The India business, which is a part of the SNC business grew for the third successive quarter on the back of robust growth in StackRoute and the TPaaS initiatives that we had launched about 1.5, 2 years ago. The EBITDA stood at INR 34 million. The EBITDA margin is at 6%. In terms of our Schools business, as you are aware, the Schools business is a seasonal business. Most of the revenue in the Schools business is during the fourth quarter of the business. So I'm not going to spend a lot of time discussing that business.

From an overall perspective, NIIT now has a very strong balance sheet. The net cash stands at INR 16.6 billion. During the quarter, we deposited the balance tax related to the NIIT Technologies transaction. The DSO has improved to 70 days versus 74 days at the end of Q2 last year. The operating ROCE is at 15.3% and our headcount is marginally up by about 19 folks. Overall, I think the quarter performed as per our expectations, and we are really pleased with the quality and the excellence of work that the teams have put in. That's all I had in terms of my prepared comments.

Vijay, do you want to take everyone through some of the points that we discussed earlier?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [4]

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Okay. So I will talk about the portion to do with the special committee's recommendations as well as the buyback procedure. So the buyback was approved by the shareholders. And on October 3 and based on that, a draft letter of offer was submitted to SEBI. And at this point of time, we are awaiting SEBI's approval to that draft letter of offer, following which the letter of offer and the process will get triggered off. At this point of time, the project is exactly as per the schedule that we had shared at the beginning of the process which has been progressed.

The second is on the tax benefits that we got because of the announcement of new tax rules. So NIIT Limited opted for the option, where we would pay lower tax going forward, but would not therefore be covered by the MAT. And this gave us a benefit of about INR 179 crores in net reduction, which had to be balanced by the MAT credit on our books, which was about INR 9 crores and therefore, INR 170 crores. And after accounting for the balances that was because of deferred tax credit as well as the taxation during this quarter, the overall benefit, which is visible in our books is about INR 164 crores. So this is a very positive news for us, and that's why we welcome the new tax regime.

On the overall rationalization, restructuring and other recommendations of special committee, one of them was to rationalize the low-profit -- the low-margin, high-capital intensity and high-risk businesses, and

(technical difficulty)

have already -- were taken out with our moving the operations of the government's Schools business from NIIT Yuva Jyoti to NIIT Limited and then NIIT Yuva Jyoti now goes below the line as a part of the discontinued business operations. There was another transaction to do with a joint venture, which we had with Genpact. This, again, had become -- was rather small, and this business will -- is proposed to be brought back into NIIT and the joint venture is being wound up. Announced earlier, NIIT bought over the stake of Genpact at a fair value, which was at very close to the subscribed value. And now the operation -- for transfer of operation, the Board just approved this afternoon, and based on that, the next steps will be taken. Again, it's proposed that after we transfer our business, NIIT and NYJ, both will be applied for liquidation in time.

The -- there was a further simplification done of subsidiaries and that will be visible in the number of subsidiaries. Some of those were step-down subsidiaries in China. Whereas we have completed the project, some of the CJVs that we had to create locally. Our local business had to be closed. So those are being done, as we speak.

Those are the actions which we have taken so far. The special committee is still in the process of examining other businesses. Certain growth capital opportunities have been identified, and that will get further clear as we progress. And tomorrow, also, there is a continuation of some of the committee meetings with the Board, where some of these discussions will be taken forward. And based on that, at appropriate times, we would be keeping you informed.

That, according to me, is the total brief that I have. At this point of time, we'll now open it up for Q&A. And Sapnesh, myself, as well as the leadership team around the table, will try to address all your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Nisarg Vakharia from Lucky Investment Managers.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [2]

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This is for the first time that we have seen the EBITDA margin in the corporate learning business go to 16% from normally 15%. And it also coincides with the execution of the Canada deal in this quarter. Can the margins hit higher as we execute that deal going at?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [3]

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Thanks for the question, Nisarg. I think there is potential. And this is something that I have said many times, there is potential for margin improvement in our corporate business. And as I've also said in the past, we've been reinvesting so that our potential in improving sales and marketing, given the headroom that this business has. I think we will continue to invest substantially in sales and marketing to exploit that headroom and accelerate growth, while we might see some improvement in margins. But what I did want to mention is that NIIT will continue to aggressively invest in sales and marketing to exploit opportunities that are in front of us.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [4]

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Because of that investment, sir, the depreciation expense also has gone up by INR 1 crore quarter-on-quarter from INR 12.7 crores to INR 13.7 crores. So this depreciation expense at some point of time will normalize because we don't see too much profit in the -- reported profit after tax due to the high depreciation expense.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [5]

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I think -- let me attempt to answer that question. This is because of reclassification of accounts after and a change in India standard, which we had discussed last quarter. It is IND AS 116, which is where leases have to be, including premises leases, have to be classified as CapEx. And therefore, part of the rental expense goes into depreciation and interest categories.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [6]

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I understood. And last question for me...

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [7]

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That's the reason you don't see a difference in PAT.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [8]

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Sure, sir. And my last question is that, are there any more deals in the pipeline, like the large Canada deal in the near future?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [9]

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We have more than one deals in the pipeline, let me say that's plural. We have deals in the pipeline that are large, and we are aggressively pursuing it. And as you would have normally got a large deal last quarter that we announced. And as I said earlier, we started accruing revenue from that and other deals that we acquired last quarter.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [10]

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I understand. And lastly, sir, I think you've done a very good job at normalizing the Skills and Career business and the EBITDA has now come to 6%. But some of the peers or the competition make EBITDA margins northward of 25%, 30%. Now I understand this is a direct function of growth, but any thoughts or insights on this business?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [11]

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Yes. I think, like I said earlier, there are 2 initiatives that we started about 2 years ago. They are both growing very robust -- in a really robust way. I don't go into specific numbers because it's still early days for those initiatives. But suffice it to say that both our StackRoute business and our TPaaS business are growing very well.

And I think over the next few quarters, you will see those initiatives meet the growth improvement in the SNC business. While I know it has buffeted around the low single-digit mark might still do that over the next 1 or 2 quarters, but I think as those initiatives mature and become a more substantial part of our India business, we'll start seeing the results of that investment.

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Operator [12]

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The next question is from the line of Shradha Agrawal from Asian Markets Securities.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [13]

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Congratulation on growth returning back to CLG business. First question is what drove growth in CLG this quarter? Was it across the portfolio? Or is some top client that drove growth?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [14]

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Let me dial back a couple of quarters and talk a little bit about why growth left us for a couple of quarters, and that might help answer your question on why growth came back. And I think I've said this over the last 2 calls, we have about 51 customers now. And out of those customers, some of our customers had got into M&A-related structuring over the last couple of quarters. There were also another couple of customers who had environmental issues, which I'll not go into specifics, but just assume they had substantial environmental issues. One of them, an aerospace company, and another one who supplies engines to an aerospace company.

These businesses are leaders in their respective categories, and they had issues. Any time a business has issues that are as substantial as that, they try to cut down their L&D expenses just as they try to cut down all other discretionary expenses. And we got caught in that. That's what caused us to show low growth over the last couple of quarters because some of our run rate business came down quite substantially. We continue to do business with these customers, but the volumes came down.

As you may have noticed, we acquired. We continue to increase the velocity of customer acquisition over the last few quarters. And that's what really helped us in getting back to growth. So the new customers that we acquired in our Q4 and Q1 started generating material revenue in Q2, and that's what caused growth to come back. I think, as we continue to provide solid service to our existing customers, including the ones who had paused their work or reduced their volume with us, as those businesses come back online and get past the environmental issues, I think those customers also will come back to run rate. We will see our growth rates coming back. Long answer to a short question.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [15]

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Sure. So I think last quarter you had indicated a broad range of 10% to 15% growth in CLG. So would you still stick to that revenue growth trajectory? Or do we see some upside to this number?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [16]

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At this time, we are fairly confident of that range.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [17]

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Okay. But the client-specific challenges are all behind us. We do not see any further rundown in any of these accounts, right?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [18]

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See that's the leap of faith that we have to make. It's hard to tell who's going to buy whom next quarter. I'm sure you might be able to tell about your customers but it's hard for us to tell about our customers.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [19]

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Sure. And secondly on SNC, you said that StackRoute and the other business has traffic contributing [since a year]. So how much portion of our revenue would be coming in from TPaaS and StackRoute to SNC India now?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [20]

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Let's just say that it's little, but we are not at a point where we are starting to discuss it.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [21]

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And then how many clients would we have onboarded this quarter in both these businesses, if that number you could give us?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [22]

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In CLG, we added 2 MTS customers. And in the corporate business, we added 2 MTS customers and in our Skills and Careers business, we added 3 large customers. The value of our managed training services customers crossed 50 this past quarter, and we are at 51 managed training services customers.

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Operator [23]

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The next question is from the line of [Ganesh Shetty], an individual investor.

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Unidentified Participant, [24]

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Congratulations for a good set of numbers and a good performance in CLG business. Sir, SNC businesses, I think been showing some -- its current sales are concerned now is at around INR 60 crore for quite a long time now. And can you just let us know how it's continuing to grow in coming quarters?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [25]

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I sure can. I think you asked a question about our SNC business?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [26]

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Yes.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [27]

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Our SNC business is going through transformation, as I mentioned to you earlier. We have invested a fair bit in 2 initiatives, which are growing at a robust pace. While some of the -- all the things that we've been doing have been ramping down. And that's why you see growth muted, even though there is substantial excitement in what we are doing with these new initiatives and more excitement in terms of when we talk to our customers and see the outcomes that they are getting from the education that their employees receive at the StackRoute's center. So what we are doing is pathbreaking. It is very exciting, and it is highly scalable. We are in the process of trying to invest so that we can achieve scale. And I think, like I mentioned, over the next several quarters, you'll start to see the impact of this investment in reflecting our growth.

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Unidentified Participant, [28]

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Sir, my second question is regarding the same CLG business. Corporate Learning business is now, I think, as I said [hit milestones]. And now we are on our way to good run rate and revenue growth also. And is there any possibility of an acquisition in near future, like last time, we had Eagle Solution acquisition? And we could add some more spend to our CLG business.

And I guess I wish to know how that part of our business is doing? And is there any other acquisition targets that we are aiming for to further strengthen our CLG business?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [29]

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From an overall perspective, inorganic growth is a substantial part of our go-forward growth strategy. We are looking at growth through acquisitions, both in India as well as outside of India. We have appointed an entity to help us with the growth aspirations that we have for our corporate business. And as and when things get materialized, we will keep you informed.

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Operator [30]

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The next question is from the line of Devanshu Bansal from Emkay Global.

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Devanshu Bansal, Emkay Global Financial Services Ltd., Research Division - Research Analyst [31]

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Just one question from my side. Shall we -- for this INR 335 crore buyback. Does this include buyback tax as well? Or this is excluding that tax?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [32]

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This is excluding the tax. With tax the amount will be INR 410 crores including full price.

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Operator [33]

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

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Sangeeta Purushottam;Cogito Advisors;Analyst, [34]

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Congratulations for a good set of numbers. My question, actually, I think I keep coming back to the same question across calls. It's really relating to your schools business. You talked a little bit about some part of the business which was discontinued, which is NIIT, was that earlier a part of Schools business? Could -- I didn't completely understand that. And what happens to the rest of the business? Are you -- have you made any progress in taking a strategic look at it like you had said that you'd be looking at this business to see what you need to do about it? If you could just tell us a little bit about that.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [35]

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Thanks for your question. I think it's an important question. First, the NIIT, the UP! business, is our skills business, which is run in partnership with NSBC, which is to skill the youth of India for achieving entry-level jobs across the services sectors. That has actually nothing to do with our Schools business. It is a business that we predominantly transact with state governments for overall CSR-related entities. And that has been refocused on a go-forward basis.

With respect to your question on our Schools business, like we have said earlier, the committee reviewed the Schools business. It also appointed an entity to get an external point of view about that business. And I think we have identified a few options that we are looking at for the strategy from a go-forward perspective. It is going to, however, take us another few months to decide on what to do. We have looked at what's going on in the market. As I have said to you earlier, there is a very, very substantial opportunity in Schools but on the other side, there are regulatory uncertainties as well as other issues that are at play. So we are taking a little bit longer to come up with a considered view, and I think we will have our strategy solidified over the next 3 to 4 months.

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Sangeeta Purushottam;Cogito Advisors;Analyst, [36]

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And at the moment, and on a balance sheet basis, how much capital is actually invested in this business? And by capital, I mean everything, which is working capital investments, fixed assets, how much past losses, whatever, how much have we actually invested in this business to date?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [37]

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Yes. It's approximately INR 25 crores, but that's ex memory, and we could give you a more accurate number.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [38]

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Well, as you know, the Schools business is an independent subsidiary, it's called MLSL, MindChampion Learning Solutions (sic) [Systems] Limited. And the total capital employed, which is actually very

(technical difficulty)

returning immediately because part of that business used to be in NIIT. And therefore, some of the working capital of that entity when they were dropped down into a subsidiary, got left behind. But right now, the current number on the balance sheet of MLSL is INR 25 crores.

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Sangeeta Purushottam;Cogito Advisors;Analyst, [39]

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Okay. So it would be this INR 25 crores plus whatever losses we would have incurred in the past, which would have gone through to -- through NIIT's balance sheet, right?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [40]

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Very correct.

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Operator [41]

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The next question is from the line of [C. Sergbase] from Albatross Capital.

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Unidentified Analyst, [42]

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Yes, good afternoon, everyone. Could you just put some light on the distribution of cash? Was the buybacks completed going forward?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [43]

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Yes. So at this point of time, just to give you the math again for the benefit of all of them -- all of you, is from the INR 2000 odd crores that we came -- we bought through the acquisition, after accounting for tax, which has been -- which is less by INR 170 crores compared to old calculation, the rest of the numbers remain the same. The total cash available for growth capital as well as out of it for distribution is INR 1,430 crores, of which we have already committed INR 510 crores for distribution.

And as far as growth capital is concerned, during this quarter, we will get a clearer picture of the number. So given the fact that right now, there is a buyback process in the offering, at this point of time, the Board cannot even consider any proposal for distribution. But certainly, there will be opportunities for further distribution, as we have stated before. And that would be taken up after the completion of the buyback.

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Unidentified Analyst, [44]

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So you could have signed for distribution. I understand the buyback is only -- could take its own time subject to approval, but is there a timeline for further distribution?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [45]

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Depending on the method of distribution, assuming that the buyback process is over in the month of January. And depending on -- after that, the meetings, I guess, one should expect some things to happen by end of the year, along with the financial because by then we would already be towards the end of it financially.

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Operator [46]

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The next question is from the line of [Siddharth B], an individual investor.

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Unidentified Participant, [47]

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Congratulations on the great numbers and the great year that NIIT has had, especially in a turbulent market and turbulent market conditions that we've all been through. So I think it shows great strength on the part of the promoters and the promoter entity as to how they have managed the flux in businesses and how they've created value for shareholders all across the value chain, with all shareholders, like myself and [others on the job].

Saying that, I have a few questions and I just wanted to ask you. So firstly, sir, you mentioned that the total cash on books is INR 1,430 crores minus. So is this the total cash on books after the buyback INR 510 crores [600] added or that will have to be further subtracted? Because I would ask you, what would be the net cash on books on NIIT post buyback, assuming 100% tendering happens?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [48]

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Yes. So first of all, I think you should attend this conference more often, your words are nice. And hope we continue to live up to your words, what that suggests.

No, the INR 1,430 crores is -- I was giving an account of the money that we bought from divestment and where is it committed for. So at this point of time, the net cash in the books is INR 1,666 crores, give or take, estimate. Now that obviously does not include a few things. There is an indemnity reserve that we have kept because of the Intel transaction, there was an indemnity period. So that's built into this. The tax has, according to us, whatever taxation was due, we had deposited it in the first 2 installments itself. So therefore, there is no more tax liability coming on because of the transaction.

And the third issue is that the dividend has already been distributed in these results. And the buyback is not yet started because it's awaiting now at this point of time, heavy approval which will come. So the account that I gave was, and that's normally a question which comes from the analyst community is that, please tell us what did you do with the money that you got out of divestment. So I was giving an account of that. In this, it is -- there are -- there is the benefit of cash which must come from operations as well as the cash which we got from treasury income, et cetera, et cetera. So this and INR 1,430 crores should not be compared. And I hope I have answered your questions. If you want to understand any other details of this cash, we could spend some time but I have shared it...

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Unidentified Participant, [49]

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So sir, the INR 1,666 crores that you're mentioning, what I need to know is that will be added to this or it includes the indemnity?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [50]

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It has the indemnity. In INR 1,666 crores, those INR 220 crores has been kept. Why? Because it is a reserve cap, so it's available in the books.

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Unidentified Participant, [51]

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So secondly, I had questions regarding RECO, starting what we are doing in CLG. So now the private bill, there is RECO, can you give us like a sort of a revenue number per quarter that's adding to the bottom line because of RECO? And you also mentioned 2 new corporate clients. So what revenue visibility can we see in terms of numbers on the bottom line as far as these 3 large contracts are concerned?

And secondly, sir, what other number do you classify as a large contract order, like what number should we think? Is it INR 100 crores, INR 200 crores? So what we don't give you that as?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [52]

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Okay. So Sapnesh will answer this. These are very good questions so I think Sapnesh will answer it. Good education for all.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [53]

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Thanks for asking the question. A lot of what you asked impinges on client confidentiality. So we can't get into specifics of how much revenue we have for a specific customer, whether it's RECO or Shell or whoever it is. So we can't get into specific numbers.

But what I can say is that a large customer for us is a customer who does about $7 million to $10 million of revenue per year with us. And therefore, a contract -- and technically our contracts tend to be 3 to 5 years. Large contracts tend to be longer in duration so about 5 years. So you could say, a large contract will be $35 million to $50 million contract for us.

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Unidentified Participant, [54]

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Right. Sir, 2 more questions regarding the strategic direction of the company. So why is it big when you're looking at acquisitions since you guys have been running NIIT technologies and you are basically sold at in bottom now focusing completely on NIIT? Now my question was, we are a company sitting on INR 1,500 crores of cash. So basically, like we have one -- I would classify SNC and CLG are 2 small businesses for people of your status. So we have 2 small businesses running, which can be looked at.

Why is it that the INR 1,500 crores is not looked at as a start-up capital for 2 very accomplished IDMs to look at something in the technical field or look at other unrelated businesses, maybe acquisitions of start-ups or investments in other companies? Or is the company looking at that because you have added Mr. Kapil on the board, who has been involved in buying and selling of startups and startups acquired? Is there a certain amount of capital that we're looking to break the tag or just choosing to be a corporate learning group and going to compete bigger? Because that's where you guys can generate greater value for shareholders as compared to just putting on training because my worry is that whenever there's a recession, the first budget that gets cut is your training and development.

So why so shrewd NIIT as a company, considering it has the brains behind it to look at unrelated businesses, which can give greater value than just focusing on CLG?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [55]

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I think as I mentioned to you, you should attend this more often, your enthusiasm is very contagious. Yes, thank you very much for your suggestions. But I think -- and for your nice words, but I think -- and some more are under discussion. And at this point of time, being an investor call and in our investor communication, we should be talking only about what has already got decided.

So when we look at the future, we start from first principles and look at all opportunities. We have a certain vision and mission to which we are committed to and that has done us well so far, and we hope -- we think there is a lot of headroom in what we have done, and we would like to make sure that we take advantage of all the core competencies that we have built as well as marry them together to get the best out of the opportunity that we have in the future.

But any ideas from your side are also welcome. Please do give us ideas at this point of time, we can put many of them as we are thinking them through together.

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Unidentified Participant, [56]

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Because sir, as an investor, when I look at the company and I look at the group, I see the fact that you build the business, which are far bigger than training services. So I feel that other investors, considering now that we have good capital, it's important. I suggest this focusing on the 10% or 12% growth in CLG it's time to now take it to the next level by focusing on other businesses, maybe which are technical in nature, which deliver technology.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [57]

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Certainly, and I think all this and more is already under -- in the thought process. So more as we become clearer. So thank you very much once again, and please join us again, contributing your...

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Unidentified Participant, [58]

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Lastly, just a recommendation and a slight complaint as well. Been trying to get through GM Financial, the brokers for the buyback, they just do not answer investors' query and they do not

(technical difficulty)

So it would be really good if a message could be given to GM Financial, that the investors' queries be answered and they take ownership of the fact that what they think is accurate and correct, not a maybe answer where I have to then decide what's in my best interest. I mean, a procedural thing, GM Financial should be able to take ownership and say, this is how it is to be done and if it is not done -- you're laughing.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [59]

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No, I think we take very serious note of your comment and feedback. I am sure, James is also on the call, somebody or the other must be there. But we take it up independently with them. And you can be rest assured. I can give you a point of contact in case, and that is our Investor Relations, Kapil Saurabh.

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Unidentified Participant, [60]

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I spoke with him yesterday.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [61]

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And he also gave you a similar response?

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Unidentified Participant, [62]

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No, I was very satisfied with Kapil's response, but I wanted to bring you...

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [63]

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You were very satisfied.

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Unidentified Participant, [64]

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Because the management -- because in the future I will be having further queries during process as well and I will have a significant number of shares that I need to tender.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [65]

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So just for you only. So for the investor community. So if you feel GM is not giving you the right responses instead of trying there and not succeeding and then trying Kapil, you can certainly contact Kapil. Kapil is available 24/7 and [so Deepak] might tell you the save this high number because look, I am company Chairman. I'm always available. I look after our shareholders' interest. Why don't I know about it? So I have these 2 feelings. And I think you should take full advantage of this opportunity.

You can come across to our office. It will be a great idea to meet you as well. But thank you very much. There are others on the call, so maybe we should give them a chance to ask a question.

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Operator [66]

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The next question is from the line of Rahul Jain from Dolat Capital.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [67]

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Basically, a small follow-up. Any plans on the allocation towards driving the organic growth? I mean [when it was spring], you said that we are doing more, let's just say you've hired NIIT some people to [our some side]. But any step that you have moved forward, both on the organic center and now then turn toward allocating this capital?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [68]

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Absolutely, a significant number of initiatives and as each of these initiatives starts coming online, we will keep you posted. But suffice it to say, at this time, a significant number of organic initiatives to

(technical difficulty)

drop. And the easy one is increasing investment in sales and marketing and a number of associated activities. But I completely agree, there are a number of organic initiatives that are currently on.

One of the areas that we are focusing a lot on is significantly expanding our consulting capabilities in the corporate space. We started doing that about 7 months ago, and we are going to start investing more significantly so that we can bring higher level of value to our customers.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [69]

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Okay. So anything in terms of what you talked about a better balance sheet is to give us a much better position in terms of anticipating [in that group] or are you [must -- going through and mention what is the right] number for this transaction and do you have [the deal that are base]?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [70]

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I think that's a very good question. A strong balance sheet is a key criteria for Fortune 500 companies to work with a partner. And I think, given the strength of our balance sheet, we now are in a better space, better shape to compete. We are better positioned today to make investments like the one that we made with respect to the Real Estate Council of Ontario. So like you pointed out, strength of balance sheet is an important criteria for our customers. And the fact that our balance sheet is strong is comforting and heartening for our customers and will give us competitive advantage.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [71]

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If I may add one, I could not get much implication on the tax thing that you did. If you could please give more of -- give what exactly because it has happened and how it changes actual tax liability and cash buyback of [when the other] impact for cash expense.

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Operator [72]

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We seem to have lost his line, so we'll move to the next question in the meanwhile. The next question is from the line of [Satinder Martin] from Americorp Capital.

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Unidentified Analyst, [73]

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Okay. So if I could go back to the depreciation question, which was asked earlier. You mentioned that moving to IND AS has raised the depreciation number. So did you move to IND AS from first quarter of this year or last year?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [74]

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No, no, no. IND AS, we shifted to the standard last year and therefore, 1 more year before that. Overall, IND AS transition. This is AS 116, so it was -- which is a change which was brought about, which was active 1 of April '19. So we are already an IND AS company. That's not an issue because that was mandatory, and we did that as per the due date.

So our accounts are aligned with IND AS even for last 3 years, if you read now '17, '18 and '19 years ending FY '17, FY '18, FY '19. But in 1 April '19, AS 116, the new standard came up, a change came up, which is to -- about accounting for what was, as we had called operating lease, is now treated as financial lease in the book, by law.

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Unidentified Analyst, [75]

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Yes. So what happens is that we -- what was above the EBITDA line now has moved below the EBITDA line. Am I right on that? The expansion?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [76]

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Yes.

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Unidentified Analyst, [77]

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So I mean has happening -- so that's happened for first quarter FY '20 or first quarter FY '19.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [78]

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FY '20.

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Unidentified Analyst, [79]

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Okay. So that difference of INR 3-odd crore that we see is primarily related to this. So effectively, we should be looking at the EBIT number rather than the EBITDA number to get a better idea going forward on the margin side and cash flow side?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [80]

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Yes. Even EBIT will not give you a correct picture because that is divided in 2 parts. Part goes in depreciation, larger part goes in depreciation, smaller part goes in interest. Interest is below the EBIT line. The right thing to compare it with is EDP.

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Unidentified Analyst, [81]

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Okay. So -- which segues in pretty nicely into the next question that I have. Which is that NIIT should publish a balance sheet and cash flow on a quarterly basis.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [82]

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Which we did last quarter and which even right now, it's a provisional balance sheet that we do publish. It's not fully audited. It's a limited review balance sheet, but last quarter was fully audited. And I think it's just convenient. There's no other reason because there are a number of subsidiaries, which are spread all over the world. And therefore, to ensure that things happen on time, we follow this process, but it's your suggestion. In any case, 2 more quarters later, you will have the fully audited. But balance sheet is available at all levels, in all quarter.

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Unidentified Analyst, [83]

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Okay. It just basically helps to give a better picture on the cash flow side, so that's fine. And then, on the tax write-back of INR 163 crores at a net level. This is just an accounting entry, right? There's no actual movement of cash that is happening here?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [84]

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There is a prevention of future movement of cash, which would have happened in the rest of the year.

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Unidentified Analyst, [85]

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Which is due to the movement because your second part?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [86]

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No, we would have a positive INR 315 crores of tax net minimum alternate tax, by end of the year, of which we had paid the first 2 installments of INR 145 crores when the law changed, and coincidentally, INR 145 crores is the amount that is due from us, plus finance a little bit. So therefore, we did not -- we do not now have to deposit NAT, which we would have otherwise deposited in this year.

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Unidentified Analyst, [87]

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Okay. So that was on the…

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [88]

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Sorry, just to complete. And that INR 315 crores of NAT we have accounted in the last quarter. So as per the accounting practice, that had to be reversed in this.

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Unidentified Analyst, [89]

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I get that. Okay. That makes sense. But -- so if I were to look at Q1 and Q2 in conjunction. One thing that still does entirely from a numbers perspective, is you've got INR 2,000 odd crores from the sale of NIIT tax. Other than some is on a net basis is INR 1,300 crores. Tax paid out last quarter is INR 145 crores. And from a corporate loss perspective, it was INR 316-odd crores. So the INR 13 crore, INR 13 crore plus INR 316 crores doesn't add up to INR 2,000 crores. So what am I missing here?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [90]

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Yes. Yes. Yes. Remember, in other income, you account for the book value of the share, which was as per in your books. And the sale value because you account further the profit that you got out of this activity. So for profit, that's not the cash that you got.

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Unidentified Analyst, [91]

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Are you saying that a book value was INR 700 crores...

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [92]

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It was INR 598 crores, if I am not mistaken. About INR 598 crores of NIIT technologies -- [by running] -- okay....

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Unidentified Analyst, [93]

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(inaudible)

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [94]

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Was [500]. I'm just -- I'm just hear how these numbers are showing, if I remember. But exact numbers are close to that.

Now why did that happen? Just to explain you that. NIIT technologies, a few years ago, was held by an SPV called Scantech. And Scantech was merged with NIIT and when the merger happened, at that time NIIT technologies value in the books of NIIT was revalued at INR 500 and whatever-odd crores and the percent book value.

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Unidentified Analyst, [95]

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Okay. Got that. So I think I'm done on the financial questions. And if I have the time, can I just ask you a couple of questions on the corporate strategy side? When I met up with Mr. Roy for about a year back, he had mentioned that sales and marketing expenses will continue to move ahead of revenue numbers for the next 18 months, 12 to 18 months. So are we at the inflection point? Or do we still have some more point -- some more time to go where you will be spending more on the sales and marketing side than your revenue growth?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [96]

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So I think I'll ask Sapnesh to answer that question and on separate note it's nice to have you back.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [97]

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Thanks for the question. I think, as I pointed out earlier, there is a very substantial headroom as far as our corporate business is concerned. I'll be repeating, if I said that in Fortune 1000, there are still 1,000 companies, only 20% to 25% of those Fortune 1000 companies have outsourced their learning in any substantial way. So there is significant headroom. And it is important for us to continue to over invest in sales and marketing so that we can grow faster.

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Unidentified Analyst, [98]

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So just as a quick follow-up, if you could very briefly explain what is the sales and marketing strategy that you are following in terms of number of salespeople that you may have? And how do you approach new clients, et cetera?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [99]

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I think that's the level of detail that we do not get into. But I think suffice it to say that our corporate sales and marketing strategy would not be very, very different from the corporate sales and marketing strategy for any B2B outfit when meeting with Fortune 500 companies.

I think I -- we went through a very detailed round of questions. Thank you very much. And your questions always help us reflect more on what we have done and what we should be doing.

Thank you very much for your very enthusiastic response to these results. I think the team is definitely enthused to do better. And thanks for all these remarks. We are, as usual, available to you, Kapil Saurabh, our Investor Relations; Deepak Bansela is the company Secretary; Amit Roy is the CFO

(technical difficulty)

takes the SNC part of the business and Sailesh and Vijay, they are based in the U.S. but are here. So in case you are in -- you have any questions, we'll be very happy to answer. And thank you very much for your support, cooperation as well as guidance. So with that, wishing you a happy Diwali -- happy and prosperous Diwali, telecom sector aside. Thank you very much.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [100]

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Thank you.

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Operator [101]

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Thank you. On behalf of NIIT Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.