NIIT's Q2 revenue seen $7 m. lower

Santosh Menon

NEW DELHI: NIIT Ltd., the computer learning and software services company

whose revenue warning on Wednesday caused Indian technology stocks to fall

sharply, expects January-March revenue to be $7 million less than what was

previously forecast, its chief told Reuters.

That is equivalent to almost 11 per cent of the company's total revenue in

the past October-December period.

NIIT, India's biggest computer education company, late on Wednesday warned

investors that its software services revenue from the key US market could drop.

In the past October-December quarter, software services revenue from the US

market accounted for 31 per cent of NIIT's total receipts.

"We feel that we have been affected by the external environment...We are

seeing $7 million worth of lesser revenues in this quarter," NIIT chairman

Rajendra Pawar told Reuters in an interview.

Pawar said two of its long-time clients were merging and had put off

projects, while another client had delayed the start date for a project and some

new orders were being delayed. Pawar did not name the clients.

"There is no cancellation, there is no reneging of the contract, there

is no renegotiating. But they have got delayed," Pawar said.

Those delays could slow the growth rate of NIIT's software services business

in the United States, he said.

"For this quarter, while the other sectors and businesses are on track,

instead of the 50s kind of percentage growth year-on-year, we will be in the 20s

for US software services," Pawar said.

The firm announces its second-quarter results on April 19.

It reported total revenues of Rs 3.03 billion ($65 million) in the

October-December first quarter, with software services revenues from the United

States geography at Rs 936 million.

NIIT's warning, the first by a large Indian software firm, sent ripples

through the market, dragging down the shares of many other leading Indian

technology companies.

The US accounts for 60 per cent of India's software exports. NIIT's stock was

down 16 per cent - the maximum permissible daily limit - in morning trade on

Friday at Rs 842.90, a 28-month low. The shares have plummeted 32 per cent since

the profit warning was issued.

Operating margins



Asked about the impact of the US slowdown on second-quarter profits, Pawar
only said that the company would maintain its operating margins.

NIIT had earlier estimated an improvement in margins but the US slowdown has

forced it to pare those expectations, Pawar said.

"Percentage operating margins will be the same year-on-year," he

said. NIIT's operating margin at the end of the January-March quarter last year

was 21 per cent. That rose to 23.32 per cent in the recent October-December

period.

Pawar said NIIT's other businesses were performing on track, with no problems

in its software business from Europe and Asia-Pacific regions or its education

business.

The education business is also important for NIIT, accounting for 44 per cent

of total revenue.

Outsourcing to increase



Despite its problems, Pawar expressed confidence that the slowdown in the
United States would ultimately benefit the firm as demand for outsourcing from

India increased.

"Medium term, there is no doubt in my mind that outsourcing demand will

increase significantly," he said.

"There are two things happening. The number of discussions and the

number of visits in this quarter from companies looking at outsourcing, the

activity is higher. The conversations and discussions are higher," Pawar

added.

But in the short term, NIIT was tightening its belt, cutting overhead and

going slow in hiring new staff.

"Intake (of staff) will be lower this quarter. The capacity utilization

figure will fall by a few percentage points," Pawar said.

NIIT's capacity utilization at the end of the first quarter stood at 78 per

cent.

(With additional reporting by Shailendra Bhatnagar in New Delhi)

(C) Reuters Limited 2001.