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Edited Transcript of NIITLTD.NSE earnings conference call or presentation 5-Feb-20 10:00am GMT

Q3 2020 NIIT Ltd Earnings Call

Feb 11, 2020 (Thomson StreetEvents) -- Edited Transcript of NIIT Ltd earnings conference call or presentation Wednesday, February 5, 2020 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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* Kaushik Poddar;KB Capital;Analyst

* Nisarg Vakharia

Lucky Investment Managers Private Limited - Analyst

* Paulastya Sachdev;Albatross Capital;Analyst

* Rahul Jain

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

* Shradha Agrawal

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

* Supratim Basu;Americorp Capital;Analyst

* Vivek Joshi;Bandarpoonch Capital LLP;Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the Q3 FY '20 Earnings Conference Call of NIIT Limited. (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. Thank you very much for joining this call. Sorry, we are a couple of minutes late, some logistics issues, but thanks for being there. And I do appreciate, it's a busy time for everyone, so we appreciate the fact that you've joined us. I have the whole NIIT leadership team, led by Sapnesh as well as my colleagues on the Board, Mr. Rajendran and Mr. Pawar who is the Chairman of the company.

What we are here to discuss is the results for quarter 3. As usual, we'll follow the format of a brief overview of the results and some of the highlights by our CEO, Sapnesh Lalla. I will talk a little bit about some of the updates on the buyback as well as updates from other issues that we were pursuing. And after that, we will open it for Q&A.

So with that, I hand you over to Sapnesh.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [3]

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Thank you, Vijay, and thanks, everyone, for joining. Please note that, as always, this analysis here is on a year-on-year basis, also in accordance with accounting standards, the net impact, revenue minus expense from discontinued operations is reported under profit and loss from discontinued operations. The previous quarter's results have also been restated for a like-to-like comparison.

With that disclosure out of the way, from an overall perspective, NIIT business grew 10% on a year-on-year basis and the revenue stood at INR 2,476 million, and that was up 5% on a quarter-on-quarter basis as well. The growth was led by the performance with the Corporate group. The EBITDA stood at INR 246 million. The EBITDA margin is at 10%. The profit after tax is at INR 271 million, up 40% year-on-year. The earnings per share is up 65% at INR 1.9. Overall, from a business perspective, it was, like I mentioned earlier, a strong quarter for a Corporate group. We added 2 new Managed Training Services customers, expanded their work with 2 customers and had 2 renewal contracts, which were multimillion dollar contracts renewed for multiple years. The revenue visibility for the Corporate group stood at $265 million, it's up 4% on a year-on-year basis.

In our Skills & Careers business, the 2 key areas of focus, which is Talent Pipeline as a Service as well as StackRoute combined showed double-digit growth as well.

As I guided earlier, about our Corporate business, there is strong growth momentum after a brief set of quarters where the growth was a little subdued. The work that the group has done over the last few quarters in terms of customer acquisition and exceptional delivery performance is resulting in -- has resulted into strong 17% year-on-year growth. The growth was 18% in constant currency terms.

The revenue in the Corporate group stood at INR 1,895 million. And as I mentioned, it was up 16%, up in constant currency terms -- 18% in constant currency terms.

One of the key projects that we have been executing, specifically the project in Canada, we had the first full quarter of delivery for this project. The enrollments and the interest in what we teach is in line with our expectations. And we expect that as the next couple of quarters move forward, we will see growth in both the interest as well as enrollments into this program.

Revenue from new customers that the Corporate group signed up over the last few quarters has kicked in this quarter, and to a great extent, that has led to the group's growth in the past quarter for the Corporate group. The Corporate group continues to attract strong global customers, customers who are leaders in their respective businesses. As I mentioned earlier, this past quarter, we attracted 2 new Spanish training services customers: one a leader in the insurance space in the United States; and other, a very large developmental organization.

We also added -- for the year, now we have added 9 new Managed Training Services customers as compared to having added 4 up to this period last year. So in the first 9 months of this year, we've added 9 new Managed Training Services customers, and that compares with 4 that we had added in the first 9 months of the previous year.

The revenue visibility is at $265 million. The EBITDA for the business is at INR 294 million. That's up 26% Y-o-Y and 9% on a Q-o-Q basis. The EBITDA margin is at 16%, and that's up 102 basis points compared to the same quarter last year.

The amortization of intangibles for our Canada project, that I touched upon earlier, has resulted in an increase in depreciation. As you would expect, while we amortize the intangibles on a straight line basis over the contract period, the revenue and margin build up over the first 3 to 4 quarters of the project going live. And as I mentioned earlier, we have completed the first full quarter of this project.

For our Skills & Careers business, Q3 is a seasonally weak quarter. The revenue for this business stood at INR 544 million as compared to INR 611 million in Q3 last year. As stated in the past, we continue to rationalize our product offerings in line with our stated goal of moderating our exposure to low-margin and high CapEx projects. Our EBITDA stood at INR 6 million, reflecting the low revenue run rate in this quarter. The 2 key growth initiatives for our Skills & Careers business, Talent Pipeline as a Service and StackRoute combine grew at 11% in Q3.

Overall, as you might expect, NIIT has a strong balance sheet. We had strong cash flows during the quarter, driven by strong collections. And the DSO days improved to 66 days compared to 77 days same time last year.

I would now request Vijay to provide a quick update on some of the Corporate actions during this past quarter.

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

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Yes. So I just wanted to give a brief update on the buyback process. As you all know that the buyback price was set at INR 125 per share and the total amount of buyback was INR 3,350 million was the total amount, which includes tax and costs associated with that. Number of shares were 26.8 million, reflecting 16% of equity. The total number of bids that we received were 59.5 million. So the subscription was 259.45% to the issue. Subscription to the smaller shareholders was 157% of entitlement and to general category, excluding promoters was 400% of the entitlement. Promoter holding in this process, given that founder subscription was only 53% of minimum entitlement was 30 -- has increased from 31.47 to 34.35.

I'm sorry, I think somewhere I mentioned that 350 million, 3-5-0, was including, I should have said excluding tax and costs. So total cost was (inaudible) when we reached there.

So overall, I think the second step of our process after commencement of the special committee that the Board had set up for these 3 purposes: one was to reward shareholders; number two was to look at rationalization and simplification of the businesses; and number three was deployment of growth capital. On the first 2, I think we have already seen actions and on -- we have seen actions on all 3. And therefore, in Sapnesh's presentation further he would also talk about what are the plans for deployment of growth capital, which is approximately on same lines as before. A detailed update, we will be able to provide in the coming few weeks.

So we will pause here right now and open the floor for questions, which I'm sure there will be many.

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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 [Amit Verma] from [First Trade Securities.]

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Unidentified Analyst, [2]

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My question is on the SNC go-forward business, what exactly constitutes go forward in this business for you? And when we are calling it go forward, why exactly is it growing at such low levels, which I think is below general industry growth?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [3]

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Thanks for your question. I think it's an important question. First, the go-forward business does not constitute some of the high CapEx business that we were doing prominently in the Skills segment. It also does not include some of the low-margin products that we had which were around providing management education. So those are the couple of product lines that we have discontinued from our go-forward business. The go-forward business has grown at a substantial pace in the past. This quarter, we saw a temporary pickup specifically with respect to our high-end IT programs under StackRoute. We feel that these are temporary and we have gone past them and these programs will start showing substantial growth. These programs are offered predominantly on a B2B basis. And there are times when organizations choose to defer a few batches, and that's really the temporary cause of reduction in growth. We expect that go-forward business to continue on its upward trend.

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Unidentified Analyst, [4]

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So -- I mean I have been tracking -- please go ahead. Hello?

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

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Yes.

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Unidentified Analyst, [6]

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Yes. So I have been tracking some of these new F-Tech companies in India, like Simplilearn and upGrad, et cetera, which seem to be growing extremely well and would eventually be competing with your SNC somewhere or the other. Now do you think for the SNC business, we may have missed the bus as far as new ways of training like online or newer skill sets like data analytics or AI are concerned? And if so, would an acquisition make sense given the cash war chest we have now?

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

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There are 2 things that I would say. One, maybe I'll answer your second question before I answer your first question. So from a growth strategy perspective, we are, as we should, are looking for acquisitions through both our capability and market access. That has been a stated strategy and we are working towards it. Second, to answer your first question, I don't think we have missed the bus. What we have focused on a lot is to create products that create very substantial outcomes for our students and our customers. We have worked on the StackRoute product for the last 4 years and we had 16 very satisfied customers, where each of the students is showing very remarkable outcomes in the work that they perform. And I think it's that relentless pursuit of quality that sometimes slows us down, but it is that foundation that has worked well for NIIT in the past. And I think that's what will work for us to create a sustainable growth model in the future.

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Operator [8]

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The next question is from the line of Kaushik Poddar from KB Capital.

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Kaushik Poddar;KB Capital;Analyst, [9]

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Did I understand you correctly, are you thinking of any inorganic moves in the School Learning specifically?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [10]

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It's hard for me or it would not be right for me to comment on exactly what we are looking at or the types of companies we are looking at. What I would want to share is: a, we look at acquisitions to create substantial increase in our capabilities. Second, we look for creating market access. Those are the 2 directional inputs I can provide at this point in time.

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Kaushik Poddar;KB Capital;Analyst, [11]

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And does -- is it applicable for both the Skills & Careers as well as School Learning or only School Learning?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [12]

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I think the largest parts of our business are Corporate business and our Skills & Careers business. And so from a capital deployment perspective, those 2 would achieve the higher priorities.

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Kaushik Poddar;KB Capital;Analyst, [13]

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Okay. And of the cash -- reserve cash hoard you are having, have you allocated as to how much should be going towards such kind of acquisition?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [14]

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We have a committee that is looking at creating a balance between rewarding shareholders, as Vijay pointed out earlier and allocating growth capital, and I think they are going to create a fine balance between these 2 key objectives.

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Kaushik Poddar;KB Capital;Analyst, [15]

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And whenever they arrive at such a decision, will it be made known to shareholders as to how much of that cash hoard will be allocated among the shareholders as well as for the inorganic growth?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [16]

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Yes. So Kaushik, this is Vijay. So as I've mentioned already, I think with the 2 actions that we have taken since then, we have already distributed INR 500-odd crores -- I mean, total outflow from NIIT would be INR 500-odd crores, which [offers] taxes and costs to be excluded, which have gone as dividend as well as buyback, and that is 36% of balance cash that was left after paying taxes as well as loans and the free cash proceeds. So that is a constant endeavor. And by the way, the business is also generating cash. So we also have to remember that. And therefore, all this will be put together and we will look at every opportunity to see that we are appropriately rewarding the shareholders and sharing the cash with them as well as keeping the cash for acquisition -- for our growth capital, which is required. And the plans for growth capital as and when they fructify on each one of those, some of those actions have already been put in force. I think we would be sharing with shareholders. Obviously, every capital deployment does get shared with shareholders at a gross level -- at an overall level.

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Operator [17]

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(Operator Instructions) The next question is from the line of P. Sachdev from Albatross Capital.

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Paulastya Sachdev;Albatross Capital;Analyst, [18]

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Just having a look at your presentation, your Corporate Learning has shown an EBITDA of about INR 28 crores, INR 29-odd crores and Skills has done about INR 60 lakhs. That comes to about INR 30 crores. However, the consolidated numbers shows an EBITDA of INR 24.5 crores. Can you just throw some light on where the balance INR 5 crore has gone?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [19]

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Yes. I think that's a great question. Our Schools business is a very seasonal business. For 3 quarters, it does not create a profit. In fact, it consumes cash. And given the decision-making cycles in most schools, which are aligned to Q4, the Q4 tends to be the largest quarter. So that's really the difference.

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Paulastya Sachdev;Albatross Capital;Analyst, [20]

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I mean, it's nice to sort of slide on that division. It's operational or nonoperational, whatever it is or some footnotes.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [21]

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No, I think the data sheet that we give along with the -- on the website, that has this detail.

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Paulastya Sachdev;Albatross Capital;Analyst, [22]

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Well, it's not there at the moment, so I don't know what you are talking about. Anyway, secondly, on the cash distribution, it's been 10 months since the deal was consummated, and even the management, I think, has clarified 3, 4 times that you need some time for the right allocation towards growth capital and distributing shareholders. So I think it's high time that the company give out some percentage or the kind of cash shareholders would be receiving?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [23]

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As I mentioned already, on every given opportunity, the company has been working on distributing the cash. And I just answered the previous question, 36% of the free cash that we had is already distributed, right, and the rest, it'll depend on what is required between growth capital as well as balance will be returned at appropriate opportunity.

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Operator [24]

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The next question is from the line of Vivek Joshi from Bandarpoonch Capital LLP.

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Vivek Joshi;Bandarpoonch Capital LLP;Analyst, [25]

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Could you give us an update on the cash on the books as of 31st December? And the contingent liabilities which were held, how long -- what is the period that they are going to be held for? What that's -- what that's about INR 200 crores?

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

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Yes. That's right. So the total cash balance at the end of the quarter was -- just a minute. Yes, INR 13.583 billion, which is INR 1,358.3 crores. Net cash is at INR 12.1 -- sorry, INR 1,292 crores. And -- so that is our cash balance. Cash was higher than net cash because of the small debt that we have, which is yet to be repaid, which will be paid at the time when it is due because the -- closing it early would be a more expensive process. So I think that is one part of your question. What was the second part?

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Vivek Joshi;Bandarpoonch Capital LLP;Analyst, [27]

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Sir, INR 200 crores of contingent liability.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [28]

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Yes, yes, indemnity reserve. So there was an indemnity reserve as per the [FHA] which we built and we kept, and that is of the order of INR 222 crores.

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Vivek Joshi;Bandarpoonch Capital LLP;Analyst, [29]

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No, that stays for how -- what period?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [30]

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2 years.

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Vivek Joshi;Bandarpoonch Capital LLP;Analyst, [31]

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Okay. And this INR 1,358 crores includes this INR 222 crores, right?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [32]

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Very correct. So you are right. We -- yes, it includes every...

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Operator [33]

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The next question is from the line of Suresh Agarwal, an individual investor.

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Unidentified Participant, [34]

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Sir, I will request to please furnish the cash flow statement, if possible, to the shareholders, so that we can come to know how much contingent liability is there, how much you have -- because at the time of receiving that one from NIIT technology, taxation was there and taxation was reversed in the next quarter, okay? So I would like to request you to kindly furnish the detailed cash flow statement, so that we would come to know how much is there, how much in contingent liability, how much you have spend in this one -- buybacks, and how much dividend is given and how much is left? And how much debt is there and net cash is there? So I would like to request -- in the last, actually, con coal also I have requested the management to please furnish the statement to the whole shareholders so that we will be acquainted with the cash position of the company.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [35]

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No, no, we will be very happy to. In fact, we must have missed it somehow in the last quarter. I'll go through the transcripts again to see if we missed out something, but I can read it out to you right now, I have it with me. Or maybe I should send it to you. What do you prefer?

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Unidentified Participant, [36]

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No, no, please read it out now, so that every shareholder on the con call will be get benefited.

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

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I'll give it to you right away. I'll give it you right away. We had the proceeds of INR 2,020.4 crores, of which there was a transaction cost of INR 56.4 crores, on which there was a tax of INR 141.2 crores. This was in comparison to INR 315.6 crores, which we had worked out earlier. But after the Union Budget in July, we had a scaling of INR 174.4 crores. So net, the tax that we paid was INR 141.2 crores. We repaid a debt of INR 178 crores. And therefore -- and there is INR 20 more crores still to be done. There was a prudent -- the reserve for indemnity was at INR 222 crores, which I answered a few minutes ago. Therefore, the free cash available is INR 1,442.6 crores.

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Unidentified Participant, [38]

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Okay. So sir, so only debt is -- debt -- hello?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [39]

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Beg your pardon?

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Unidentified Participant, [40]

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Debt outstanding is only INR 20 crores?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [41]

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That's right. INR 20 crores of long-term loans, then there is a cash credit limit in U.S. and Canada, which obviously gets paid from their own cash.

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Unidentified Participant, [42]

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Okay. So after a buyback and all these things, actually we were left with around INR 1,400 crore of cash -- net cash?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [43]

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We were left, we were left, of which we paid a dividend of INR 5 in August, which consumed INR 102.6 crores. And we did a buyback of INR 412.8 crores total cost, INR 335 crores net to the shareholders, so balance in tax and costs.

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Unidentified Participant, [44]

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So how much balance is now there in our book?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [45]

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INR 927.2 crores.

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Unidentified Participant, [46]

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That is there from the proceed of the NIIT Technology?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [47]

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That's right.

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Unidentified Participant, [48]

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And the remaining cash generated by our business activities?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [49]

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I gave you the total cash balance.

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Unidentified Participant, [50]

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Okay. How much is there?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [51]

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I gave you a total cash balance of -- just one minute. Net cash was INR 1,292 crores. I would still like to send you that cash statement. I don't think there is an issue, but Kapil will make sure that you have it.

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Unidentified Participant, [52]

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Okay. I will be very much happier if I will get it.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [53]

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No, no, no, you -- I also request sometimes in our conference call, it is possible we may miss out something. It is absolutely no harm and we are happy to receive an e-mail from any of our shareholders. We love to respond to their questions.

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Operator [54]

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(Operator Instructions) 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 [55]

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Sir, this is the second consecutive quarter wherein we've clocked upwards of 15% margins in CLG. So is this a new normal we are looking at? Or how should we build in margins for the next few quarters?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [56]

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I think this is the right ballpark in a [buffet,] a few basis points up or down, but that's right ballpark.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [57]

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All right. And how should we look at our growth rate, organic in CLG for, say, a year beyond, given that we've seen good traction in customer addition? So earlier, we used to talk of a 10% to 12% annual growth in CLG. So do we stick by that statement? Or we see some upward revision in our growth outlook in this business?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [58]

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I think we should look at our current growth rates in the mid-teens as the outlook.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [59]

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All right. And second question to you, Vijay, is given that DDT has been abolished in the recent budget, so what should be the new preferred mode of cash return to shareholders? I mean, between -- balance between buyback and dividend, how should we look at the way through which we would be rewarding the shareholders going forward?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [60]

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Okay. Given that the Union Budget was only on last Sunday and I think every day there is a little bit of announcement for clarification as people are discovering what all is happening with the budget. Obviously, in this Board meeting, we could not take any call and any discussion on that. But definitely, special committee that we have, which is looking at rewarding shareholder is continuously looking at. And as we speak, we are examining the budget in detail and then charting out the strategy. It will be wonderful if we can also receive some suggestions from our shareholders because everybody's combined, should I say, knowledge and expertise will help in taking up a decision which is beneficial to our shareholders.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [61]

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Right. I mean, the reason why I asked this question is, Vijay, it's been 2 quarters that we announced dividend, and I understand that buyback was announced, I mean, just last quarter and 9 months from now that we can announce another buyback. So do we -- or we can expect a dividend announcement between Q3 and Q4 is the directional sense I want to get from the management?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [62]

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So Q3 is already over and we are in Q4. Q4, we are at this time examining the budget provisions. And if the budget stated exactly what it stated, then there is a cutoff point, which also will be coming up. And therefore, we have to examine what is best for our -- for all our shareholders. But obviously, it can only be in the future. It can't be in the past because the quarter is over. So I think best would be that we remain in touch and if in that process you have any suggestions to make, we'll be -- we'd love to hear those suggestions.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [63]

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Sure. We can discuss this offline. And the other thing is, how should we build in our tax rate going forward now because this time around, we had 15% as PBT -- tax to PBT, so what should we bake in for our future quarter projections?

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Unidentified Company Representative, [64]

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18% to 20%.

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

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18% to 20% would be an appropriation level next year.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [66]

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For FY '21 and '22, right?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [67]

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Very correct.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [68]

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Right. And the same number on the CapEx, if you could provide, how should we look at CapEx?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [69]

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So there is a normal CapEx, which is a normal level of CapEx, which we are incurring, which is in the range of INR 50 crores to INR 70 crores every year. There is a growth capital deployment, which is -- which are projects that we are working on. That may get augured by some of those initiatives. So I would wait 1 more quarter so that we can give you a clearer picture. And by that, anyway this financial year will end and we'll be able to share with you the plans for next year as well.

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Operator [70]

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The next question is from the line of Nisarg Vakharia from Lucky Investment Managers.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [71]

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Sir, if I heard you correctly, you said that the normal CapEx in the business is between INR 50 crores to INR 70 crores per annum?

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [72]

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No, no. What we have been spending -- if you see our last 2, 3 years, we have been spending in that range. So I'm saying that given that there is a business acceleration, that kind of CapEx will be spent. Of course, we will not be spending on the same thing. For example, we were doing the Canadian project for which there was a certain amount of CapEx and that was on a higher side. But that project work most of it is over. So now I think most of the CapEx will go for expansion and growth.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [73]

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Okay. Sir, referring to the Corporate Learning business, let's say, if we do a INR 100 crore to INR 115 crore EBITDA approximately that number this year, what is the cash flow that we will make on that EBITDA?

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

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My gut feel is that there is about 55 days of working capital.

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Unidentified Company Representative, [75]

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(inaudible) we expect that. Therefore, as an overall, it'll improve...

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

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Yes. My feeling is that from that there are some project-related CapEx and there is a working capital of 50 to 55 days of sales. Rest of it all comes into cash.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [77]

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So 50 days of working capital. And other than that, there is a basic CapEx, which you are saying?

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

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Yes.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [79]

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No, sir, what I am trying to understand...

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

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Last year, it was on -- last 2 years, it has been on a higher side because of our project CapEx. Now that, as I said, we...

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [81]

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Sir, next year, if we suppose grow our EBITDA and top line at 15% and if we do, let's say, INR 130 crore EBITDA, on INR 130 crore EBITDA in the CLG business, how much cash flow will we make?

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

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My gut tells me north of INR 70 crore -- INR 65 crores to INR 70 crores.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [83]

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INR 65 crores to INR 70 crores?

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

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Yes.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [85]

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But then you are saying working capital cycle is only 2 months, right?

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

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Sorry? Yes, 50 to 55 days.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [87]

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Sir, then why is the EBITDA to cash flow conversion so low? Because if it's only 2 months of working capital cycle, the EBITDA to cash flow should be much higher, right?

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

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It should be much higher. I'm assuming that we are expanding -- we're going to invest in expansion.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [89]

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Okay. So you are referring to free cash flow, when you say INR 50 crores to INR 55 crores?

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

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Yes. Oh, no, no, no. Then you just have to remove 50 to 55 days, nothing else should be removed.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [91]

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Exactly my point. Okay. Okay, got it. And sir, this CapEx, which we are doing, so when we look at a typical IT services business, the IT services business has essentially a similar working capital cycle as compared to you, but balance of all of that money actually goes into free cash flow. So is it that our business is structurally different and we constantly need to do CapEx to get this business? Or is it that this is a business which is at an inflection point and hence we are doing CapEx?

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

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Both reasons. A, it is slightly different. For example, the kind of work -- so I'm just saying if IT services companies got a project saying you please right SAP and then deploy it in our company, then -- and take next 2 years to write that SAP -- I'm taking SAP as (inaudible) and then deploy it for the next 5 years in the company and run the operation. Today, they do the second part. The first part is already done because there is a standard software, which is used because they are doing implementation of existing software, maintenance of existing software and sometimes writing existing software. Our contract -- some of the contracts are structurally different. And that's why project CapEx comes up. Otherwise, by the way, our working capital is much more efficient than a typical IT services company. If you see, our receivables will be much better -- are much lower than a typical IT services company.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [93]

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Yes. But we ultimately see the free cash flow in the business.

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

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No, no, I agree. I'm not saying yes or no, but I'm just saying sometimes the projects are of the kind which involve larger CapEx upfront.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [95]

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Okay. Sir, any large contracts that we are now pursuing, like the Canada deal, which is in the near-term horizon or we have visibility for?

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

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I think during this year itself we got one, which we have shared.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [97]

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Yes. This year, we had 1 so far and we have a pipeline of 3. And we expect the decision on at least 1 or 2 of them over the next 3 to 4 months.

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Nisarg Vakharia, Lucky Investment Managers Private Limited - Analyst [98]

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Sir, what would be the size of these 2 deals, which you expect a decision?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [99]

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It would not be right. I mean, this is a public call and we are under strong NDAs, and it's not hard for someone to figure out what those deals might be. So I would much rather talk about them once they are done and dusted.

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Operator [100]

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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 [101]

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My question is about the CLS business and the write-off, say -- sorry, not write-off, but amortization that we have done in this quarter. So what is the total amount on which we need to do it? And what is the tenure that we are considering for that?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [102]

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So I would answer the question over 2 dimensions. One is that it is amortized over the duration of the contract, which is 5 years. In terms of exactly how much it is, given that it is very project specific, we would not disclose that.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [103]

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Okay. And just to understand, both from revenue and amortization perspective, since this was a quarter where we had it for the full of the quarter, has the contract ramped to its potential? Or there is some legs more where we reach the full potential? And similarly, on the depreciation or amortization point, have we reached the peak run rate like?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [104]

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I think that's a very good question. To answer your first question first, have we reached the run rate like you pointed out, and I had said earlier, this was the first quarter of operation and I think we will reach our regular run rate in about 2 to 3 quarters. So this is the first quarter. We'll have to wait for 2 to 3 quarters for it to reach full run rate. I think the second question was, is there likelihood of increase in the depreciation component. Like Vijay pointed out earlier, a large majority of the work has been completed. So what you might see in terms of increase in depreciation as related to this project would be implemented.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [105]

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Because depreciation is on a straight line method.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [106]

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On a straight line basis. Yes.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [107]

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Okay. And lastly, if I may. In terms of -- we had this thought, since we have encashed this huge asset that we had and we could now potentially look like a much stronger company from a cash and net worth perspective. So can you say that some of these -- those benefits are visible in the orders that we have added now? Or these are in general things that we had and now we may see that potential to be capitalized in future?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [108]

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I think it is certainly giving us a competitive advantage in the conversations that we are having right now. As you are probably aware, our sales cycle tends to be 2 to 3 quarters in duration typically. Sometimes it is longer than that, especially for large deals. But as our customers consider us, they look at us favorably given our strong financial position -- given our strong balance sheet. I think they also take heart in the fact that as an organization, we continuously invest in becoming better. We continuously invest in technologies and innovations, which make our services more valuable to our customers. And the last thing I would say is given our strong position, it creates a sense of trust with our customers that these guys are here for you.

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Operator [109]

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The next question is from the line of Supratim Basu from Americorp Capital.

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Supratim Basu;Americorp Capital;Analyst, [110]

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Can you give me a sense for your Corporate Learning group that on a normalized basis what can be the annual revenue growth rate for the business?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [111]

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See like we've -- like I mentioned a little bit earlier, this year our growth rate is likely to be in the 10% to 15% range. And as we look ahead, it's likely to accelerate to mid-teens.

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Supratim Basu;Americorp Capital;Analyst, [112]

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So are you saying that this quarter's performance was exceptional for you to guide for a 10% to 15% annual revenue growth for the subsequent -- to point to 10% to 15% annual growth rate for the next year?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [113]

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No, I didn't say that. What I said is that for this year, we have guided 10% to 15%...

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [114]

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And we are on the upper end of that right now.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [115]

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And that's because in the first quarter, we had not had a very strong growth rate, and that caused us to have us...

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Supratim Basu;Americorp Capital;Analyst, [116]

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No, no, I've -- okay. So I understand that. What I'm trying to get a sense for is that as you build up this business and as you have invested so much in the business, going forward, if you were to take a 2- to 3-year view, is, say, 20% revenue growth feasible in this business?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [117]

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Let me repeat what I said. What I said is, the next year, we are looking at mid-teens. And from a feasibility perspective, yes, over a 3-year period, a 20% growth rate is feasible.

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Supratim Basu;Americorp Capital;Analyst, [118]

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Okay. And just a small data question on this quarter's numbers. You mentioned that revenue is up 17% in rupee terms, but constant currency was up 18%. Where did you get hit on the currency?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [119]

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I think the predominant hit was between cross currencies between Europe and United States. So it was not as much on GDP-INR or euro-INR or USD-INR, but it was the cross currency between Europe and United States.

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Supratim Basu;Americorp Capital;Analyst, [120]

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Why would you have a cross-currency hit, are you either billing U.S. from Europe or vice-versa or delivering services in that manner?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [121]

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See, we have -- I mean, almost all of our customers are global customers. And so we might have U.S. or Europe as a billing location, whereas the services might be getting delivered in United States or from United States. And...

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [122]

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We bill them in one currency.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [123]

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And we bill them in one currency, given that we are servicing them as a multi-national. So that's the reason why there is a cross-currency between United States and Europe. And now I can't just Europe now, I think I should say, United States, Europe and U.K.

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Supratim Basu;Americorp Capital;Analyst, [124]

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Okay. One more data question. Your depreciation has basically jumped by INR 4.1 crores for this quarter, if I were to look at it sequentially. And you mentioned earlier that you follow straight line -- you're following straight line method and anyway from a -- if I were to take a 15% depreciation rate, that works out to what INR 27 crore incremental CapEx during the quarter. Am I reading that number correct?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [125]

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So -- no, I don't think so. Let me try and explain depreciation -- or the incremental depreciation between previous quarter and this quarter. Like I pointed out, we had the first full quarter of a large contract that we are executing in Canada. And as Vijay pointed out, for that contract, there was significant IP creation that was done in the first 2 years of the contract. And then in the last quarter, we had the first revenue generating full quarter of the contract. And so if I look at it from a straight line depreciation perspective, while the revenues on this contract will ramp up over the next 3 -- for 2 to 3 quarters to become normalized revenues, from a straight-line perspective, the depreciation has started. And so you are seeing a full increment of depreciation, whereas a part increment in terms of revenues. Did that make sense?

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Supratim Basu;Americorp Capital;Analyst, [126]

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Yes. Okay, partly. I mean, I'll discuss this further offline. I mean, just taking this Canada project as an example and tying up with something you mentioned to another analyst previously, the -- when you say IP creation was done ahead of a project actually going live. This is basically content creation, right? So what you are doing is that we are taking manpower expense and capitalizing it?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [127]

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That is to some part correct, the content and technology.

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Supratim Basu;Americorp Capital;Analyst, [128]

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So when you say technology, this is -- I mean, you are capitalizing licenses?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [129]

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No, we -- the technology that we have built to deliver the content.

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Supratim Basu;Americorp Capital;Analyst, [130]

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Yes. So what is the technology? I mean, what does -- when you say technology to deliver this content, what does the technology consists of?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [131]

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You can think of it as a platform. So the modality for delivery of this content is digital. And our students come to our platform to consume these programs as well as we use technology to continuously engage with those students while they are on the platform as well as after they have completed the course.

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Supratim Basu;Americorp Capital;Analyst, [132]

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Right. So again, effectively, when you say it is your platform and it's a custom-made platform for delivery, to build that platform it's essentially manpower cost, some amount of hosting charges. And if you are paying for database or other software, the license fees, right? There's nothing else that is there in this thing called technology?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [133]

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Yes. Yes. I mean -- so I mean, building the platform is not...

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Supratim Basu;Americorp Capital;Analyst, [134]

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It's basically people cost.

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Unidentified Company Representative, [135]

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(inaudible)

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Sapnesh Kumar Lalla, NIIT Limited - CEO [136]

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Those are (inaudible)

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [137]

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Yes, it is. That we said in the first place itself.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [138]

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Yes, yes, but I couldn't figure out the point that you were trying to say.

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Supratim Basu;Americorp Capital;Analyst, [139]

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Yes. Okay. And -- so if you again take this Canada project as an example and you are building IP before the project goes live, what would be the tenure of this project?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [140]

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5 years.

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Supratim Basu;Americorp Capital;Analyst, [141]

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Okay. So the project is lasting for 5 years. And how much time did you spend preproject building the platform and content?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [142]

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2 years. So contract term or the delivery term is 5 years from the day of going live.

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Supratim Basu;Americorp Capital;Analyst, [143]

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Okay. I'll -- okay, I would want to discuss some more on this, but we'll do that offline. And then coming back -- and just one last...

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Sapnesh Kumar Lalla, NIIT Limited - CEO [144]

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You are most welcome.

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Supratim Basu;Americorp Capital;Analyst, [145]

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Sure. Just coming back 1 last time to the Corporate Learning Group. Your EBITDA margins have been steadily rising over the last few quarters. Is that a trend that you think will continue going forward? Can we expect further improvements or we have -- or are we pretty much reaching peak EBITDA levels now?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [146]

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In our growth journey, I wouldn't call it peak EBITDA level. What I have said in the past is that we are continuously investing in sales and marketing, and we will continuously do that. I would expect the margins to [buffet] in this zone or in this ballpark.

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Operator [147]

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The next question is from the line of Suresh Agarwal, an Individual Investor.

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Unidentified Participant, [148]

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Sir, our market cap as on date is around INR 1,430 crore, equivalent to our (inaudible) more or less, and (foreign language) other than promoters, FII, DII, (foreign language) marginal shareholders are around 24%. But our share price is not (foreign language) reaching the buyback level also. What's the reason, sir?

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Sapnesh Kumar Lalla, NIIT Limited - CEO [149]

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I think you should be answering that. We only run the fundamentals of the business. We don't manage the share price. We can tell you what -- why our profits are high or low, why our revenues are high or low. You -- the share price is determined by all of you who are on the call. So it will be a wrong question [for us.]

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Unidentified Participant, [150]

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No, no. Why I am asking actually, like all the companies are going to -- going for like one-to-one individual meetings with the FII and mutual funds on all those big players, okay? But since our FII, DII all these shareholdings are already going up more or less and they are having a substantial stake in the company. And this minority shareholders, their stake is coming up from 27% -- from 5% to around 24%. But still our share price is not reflecting the true value because it is more or less the -- market cap is more or less at this price is equivalent to the case we are building. So please -- I will request you to do something so that our share price also gives us some value.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [151]

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Your point is taken, but what we can do, I can again repeat, is to improve the fundamentals of the business, which is what we work day and night for. But any more suggestions you have, we'd love to take here. Thank you.

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Operator [152]

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As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

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Vijay Kumar Thadani, NIIT Limited - Co-Founder, Vice Chairman & MD [153]

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Okay. Thank you very much for your very active participation. Your questions, as usual, create more education for us and give us time to work on things that we should work on and define our priorities. I think there was only one follow-up request for data, and that was to share the cash flow statement. We'll be happy to share of the procedures of the divestment, and that is something which we shared to others. But if you have any other questions on any part of the business, please do not hesitate to contact Kapil Saurabh, Sapnesh or anyone of us, we'll be happy to answer further. Thank you very much once again for your continued interest in NIIT. All the best.

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Sapnesh Kumar Lalla, NIIT Limited - CEO [154]

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Thank you.

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Operator [155]

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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.