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NIIT Ltd
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Ladies and gentlemen, good day, and welcome to the NIIT Limited Quarter 4 and FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Vijay Thadani, Managing Director and Vice Chairman of NIIT Limited. Thank you, and over to you, sir.
Thank you. Good afternoon to all of you. Also good morning or good evening in case you're joining from international locations. First of all, thank you very much for joining this call today, and your presence here means a lot to us because we decided to give time to guide us and to give us feedback. This call is to discuss the business performance for quarter 4 as well as the full financial year ending March 31, 2022, of NIIT Limited. I'm requesting Sapnesh to first provide an update and that before he does that, I would also like to just set the context.
So first of all, I would like to believe or I would like to inform that the financial year ending March 31, 2022, has indeed been a milestone year for NIIT. There have been a number of important milestones crossed. First, NIIT completed 40 years of operations. And in these 40 years, has touched nearly 40 million people. The second, one of the better years in terms of our financial performance as well as in terms of customer addition, inorganic expansion, partner addition, new business models, peer recognition and, of course, ending the year with the beginning of the reorganization journey that we embarked on.
The strong results that we'll share with you are in terms of revenue growth and profitability, and they are also a testimony to NIIT's resilience, sustainability, ability to transform to remain relevant and the brand trust that we have built in the market that we service over the last 4 decades. These results also reflect the sharp transformation that we have achieved over the last couple of years, defined and driven by the agile and decisive actions, the depth and breadth of our experience in learning technologies and the strong execution capability that the company has displayed.
So we started the year by investing in the growth agenda and in talent, which has become the top priority for every corporation. But to describe to you the journey of the year as well as where we stand right now in terms of our readiness for the future, I would now request Sapnesh Lalla, CEO and Executive Director, to share the initial brief. I may also mention that we are joined here in today's call by our Chairman, Mr. Rajendra Singh Pawar; and my other colleagues, Mr. P. Rajendran, the Joint Managing Director and Executive Director; Mr. Sapnesh Lalla, the CFO; Mr. Kapil Saurabh, who looks after Investor Relations and M&A; and Mr. Udai Singh, the Chief Strategy Officer; as well as Mr. Deepak Bansal, who's the Company Secretary. And we would all be very happy to entertain questions as well as answer them to the best of our ability at the end of the initial brief.
So with that, over to Sapnesh.
Thanks, Vijay, and thanks, everyone, for joining this call. Please note that based on the proposed reorganization of the company, the residual schools business, which was earlier classified as an asset held for sale, is now classified as a business with continuing operations. And therefore, the financials have been consolidated in the current as well as previous quarters for like-for-like comparison. With that out of the way, let me start to give you the overall highlights for both quarter 4 as well as the financial year '22.
In quarter 4, NIIT's revenue stood at INR 3,750 million, and it was up 35% year-on-year. Both the Corporate Learning Group as well as the SNC businesses have achieved robust growth on a year-on-year basis ahead of our expectations, and I will cover this in more detail later on in my presentation. The revenue was down 3% on a quarter-on-quarter basis, given that quarter 4 is a traditionally low quarter for NIIT, both for CLG as well as SNC. Excluding the RPS acquisition, which was consummated on first of October of '21, the revenue was [ INR 3,460 million ] and organically, the business was up 24% Y-o-Y.
Net EBITDA was at [ INR 372 million ], up 6% year-on-year. The tax was negative INR 14 million for the quarter. This includes a net tax benefit of approximately INR 180 million arising on the planned completion of voluntary liquidation of NYJL during the quarter. The profit after tax was at INR 674 million, resulting in an EPS of INR 5 versus INR 3.30 last year. The EPS is up 53% year-on-year. Overall, for the fiscal year '22, the revenue was at INR 13,775 million, and that was up 44% year-on-year. Excluding the RPS acquisition, the revenue was INR 13,183 million, and that was up 24% year-on-year on an organic basis.
The EBITDA was INR 2,999 million, up 82% year-on-year. The profit after tax was INR 2,262 million, resulting in an EPS of INR 16.8 versus INR 10.1 in the previous year. Please note also that the EPS includes the impact of the buyback of 9.875 million shares completed earlier this year.
Looking at the Corporate Learning Group, we are continuing to disproportionately invest in new capabilities, new markets and in expanding sales and marketing to achieve higher market access. Our investments are enabling us to accelerate deal velocity and scale delivery capability globally.
During the year, we added 16 new MTS customers and increased our revenue visibility to [ $328 million ]. As shared earlier, during the year, we started investing in entering the higher education vertical in the United States. While it's still early days, we have strong traction with 2 large public universities in the United States. We expect to accelerate the deal velocity in this vertical in FY '23 and expect this vertical to be a material contributor to our revenues in the year FY '24.
In Q4, the revenue was -- for the Corporate Learning Group, the revenue stood at INR 2,957 million, and that was up 24% year-on-year. In constant currency, the revenue was up 23% Y-o-Y and flat on a Q-o-Q basis. Despite the seasonality, the business stayed strong in Q4. The EBITDA was INR 716 million. The EBITDA margin was 24%. It was down 37 basis points on a Q-o-Q basis. As guided earlier, the margin was down Q-o-Q, driven predominantly based on investments and transition of the multiple new customers that we have acquired this past quarter as well as overall in the second half of the year.
The second part was the planned ramp-up as guided in expenditure in sales and marketing, as well as, to some extent, the partial resumption of travel and premises-related costs due to the opening up of the economy. Our investments are continuing to help us add and scale contracts, both existing as well as with new customers. During Q4, the Corporate Learning Group signed 3 new MTS customers, all 3 of them in the Life Sciences segment, and one out of those 3 in the biotechnology manufacturing segment. So we continue to expand our reach and breadth in the Life Sciences segment. We also expanded 2 existing contracts, one with a large technology company and the second with a large global GSI. We also continued to maintain a 100% renewal track record by extending all contracts that came up for renewal this quarter. Now overall, the Managed Training Services customers tally stands at 66.
So overall, strong order wins, ensuring revenue visibility to be at $328 million at the end of the year. For the full year, the Corporate Learning Group reported a growth of 35%, achieved an EBITDA of INR 2,989 million, which was up 68% on a year-on-year basis. The EBITDA margins were 26%, and that was up by 508 basis points on a year-on-year basis. Growth in margins over the last 2 years have been robust and have been ahead of our guided range.
As I have mentioned earlier, the consumption of our services with existing customers had dropped during the pandemic over this past year. The consumption, while still at lower levels, has stabilized and most of the growth that we have seen has been a result of proactive investments in sales and marketing and new capabilities, which have helped us gain new customers as well as grow our business with our existing customers. Growth has, like I mentioned, come through addition of new customers as well as the expansion and share of wallet with our existing customers. More recently, and I'm sure you see it in the news, while there has been an increase in uncertainty in the environment, however, in terms of our preparedness and capability set, we are confident -- more confident than before in our ability to execute. We are doubling down our investments and planning for the earlier guided 20% growth, 20% profit trajectory. Given the massive uncertainty in the environment, there may be some variations in this, which we would update you from time to time. The year has started well, and we expect to achieve a 5% quarter-on-quarter growth in the Corporate business in the first quarter of this year.
In our Skills & Career business, quarter 4 is, as I mentioned earlier, a seasonally low quarter. In spite of that, the revenue for the quarter was a strong INR 793 million. It was up 97% year-on-year. Excluding the acquisition of RPS, the revenue was INR 503 million, and that was up 25% year-on-year. For the year, for SNC, the revenue was at INR 2,465 million, and that was up 99% year-on-year. Organic growth was up 51% year-on-year. This business has shown smart recovery over FY '21 and is now on a robust growth trajectory. The EBITDA was a positive INR 10 million as compared to a loss of INR 132 million the previous year despite the increased investments in our digital learning offerings.
As stated earlier, we see this business as a strong digital learning platform across domains for both career seekers as well as working professionals. The addition of RPS Consulting has reinforced and further strengthened our offerings, both for the early careers as well as the working professionals. The business provides -- the RPS business, as I've mentioned earlier, provides training in the emerging digital technologies to working professionals, a segment which has seen strong demand due to digital transformation across key businesses in India.
Given that, we see a multiyear growth cycle in demand for digital talent, as businesses increase adoption of digital services to service their customers globally. Given the large opportunity, we have accelerated investments in the SNC business, which has helped us lift the revenue run rate. Between StackRoute, RPS and the Enterprise business, we have a strong coverage of the global system integrators who are the enablers of digital transformation globally, the global capability centers who are early adopters of digital, as well as leading Indian enterprises who have started their journey on the path of digital transformation.
We now have a range of offerings that cover key aspects of digital transformation, including 5G cloud technologies, cybersecurity, game development, data science, AI, ML, full stack product engineering as well as key programs in digital marketing. NIIT has contributed to the growth of IT industry, but over the last 40 years, as you might be aware, and continues to help the industry deal with its talent shortage. In FY '22, the company trained and onboarded nearly 10% of the fresh IT graduates into the IT industry. Our flagship offering, StackRoute and TPaaS continue to deliver strong growth for the previous -- for the year FY '22, StackRoute and TPaaS grew at 137% year-on-year and contributed 41% of the overall SNC revenues.
Our balance sheet continues to be strong. The cash position improved quarter-on-quarter by INR 258 million to INR 12,525 million versus INR 12,266 million at the end of previous quarter. Please note that this is despite the payout of about INR 400 million towards the interim dividend announced and paid during the fourth quarter. Our days of sales outstanding were at 48 days as of March 31, and this is as compared to 57 last quarter and 55 at the end of previous year. Operating cash flow in Q4 was at INR 747 million and free cash flow was at INR 627 million. As of March 31, 22 we had 3,104 NIITians and that is up 272 on a quarter-on-quarter basis, as well as up 503 on a year-on-year basis. Overall, we continue to believe that we have a tremendous opportunity ahead of us both in the Corporate Learning Group as well as in the SNC business. For the Corporate Learning Group, global corporate training is and is a growing [ $400 billion ] market, and it has grown significantly on a year-on-year basis. NIIT has established a strong right to win with significant differentiation and value creation for its customers, both in terms of effectiveness and efficiency of learning. Consistent growth and strong margins and an asset-light, high ROCE model has helped us deliver strong results and strong growth over the last couple of years. And we continue to aspire to stay on this growth journey.
For the SNC business, training for digital skills in India represents a [ $15 billion to $20 billion ] opportunity. NIIT has been a top provider of technology training to both individuals as well as enterprises over the last 40 years, and we hope to consolidate our position among the top providers of technology training in India. We have an opportunity to establish leadership position in digital learning and establish NIIT as the #1 choice for both career seekers as well as working professionals.
With that, I'll hand it over back to Vijay to give you a quick update on the reorganization.
Thank you, Sapnesh. So as we had shared last quarter regarding the special committee appointed by the Board that noted that to address the next phase of growth in CLG and Skills & Careers, it is imperative that target customers get undivided attention, differentiation focus and clear positioning. Also, businesses need agility, independent decision-making and capital allocation tied to value creation for our customers. NIIT has the necessary capital to support the growth ambitions of each of the 2 businesses, and the -- for creating 2 independently run businesses. This significant growth capital will propel both CLG and SNC to realize the true potential that Sapnesh just shared.
So based on this, the Special Committee had recommended creating 2 independent entities and maximize their potential. Based on the recommendations of the Special Committee and advice from the experts engaged in the process, the Board of the company had approved the reorganization of Corporate Learning Business as an independent company separately listed on the stock exchanges. All assets, resources, contracts, investments, including the subsidiary companies that form part of the CLG business should -- would be transferred and vested into the NIIT's wholly owned subsidiary NIIT Learning Systems Limited. This would result in a vertical split of NIIT Limited.
And post the reorganization, NIIT Limited would run and operate the Skills & Careers business and NLSL, that is NIIT Learning Services Limited would run and operate the CLG business. The shareholding of MLSL will be an exact mirror copy for our shareholders with every shareholder getting 1 share of NLSL for every 1 share of NIIT held by them. And post this reorganization, NLSL shares would also get listed on Bombay Stock Exchange as well as National Stock Exchange.
This reorganization is under Section 230-232 of the Company's Act through a composite scheme of arrangement, which is subject to approval by shareholders, creditors and customary approvals from various regulatory bodies. And it was expected to take 12 to 18 months to complete. I, along with the management team, are excited about this reorganization and believe that we can create significant value for the shareholders, customers and employees of both the companies.
At this point of time, the company has taken the planned appointed date of the reorganization as April 1, 2022. And post the approval process that it is currently undergoing with the Bombay Stock Exchange, National Stock Exchange and SEBI, the next set of steps would be taken, with the National Company Law Tribunal, which is NCLT. And once the approval of NCLT is obtained, the reorganization would be deemed to have been happened from the appointed date, which is April 1, 2022.
So at this point of time, we are in that phase and would keep our shareholders and investors posted on the progress in this matter from -- in every quarterly results or it in between the 2 results, if there is a significant development, accordingly, to investors. So we are at this point of time, and I would now like to open this discussion for Q&A.
[Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital.
Given the pending demerger, as the domestic Skills & Careers Group began to adopt a different go-to-market approach than that was perhaps different from the earlier days. And importantly, how do we view the profitability of this vertical and organically? What kind of growth rates are you looking at there?
Thank you, Baidik. I'll ask Sapnesh to answer this question.
Sure. And thanks, Baidik that question. I think from an overall perspective, for our India business, we have a dual go-to-market which addresses 2 segments, both the early career segment as well as the working professional segment. And we addressed the working professional segment through our enterprise go-to-market. We addressed the early career segment both through our enterprise go-to-market as well as our B2C go-to-market. And our overall strategy is to expand the B2C go-to-market to address working professionals as well over time.
In terms of our growth, we are continuing to invest -- as I pointed out earlier, continuing to invest in both go-to-market strategies and expect to have strong double-digit growth. Last year, as I pointed out, we grew at more than -- almost 99% on a year-on-year basis, and we expect to have a strong growth of over 50% in this coming year as well. In terms of profitability, we expect the investments to continue, and we will have either a breakeven or a small profit for the year '23. Excluding I think one part of your question was around organic growth for this past year. The organic growth for the past year was approximately 50% for the SNC business.
Your comment on disproportionate investment in the market access in the CLG business, could you flesh that out better? And your thoughts on deal velocity for [ FY '20 ], right, you sounded really [indiscernible]. What are the lead indicators suggesting are right if exact here?
Yes. I think as you may have noticed, over the last 2 years, we've seen accelerating deal velocity. And this acceleration in deal velocity was the result of continuing investments or disproportionate investments in sales and marketing over the last 5 years. And I think given the environment and the success we've had, we would like to continue to increase these investments. About 3.5, 4 years ago, we started investing significantly in the Life Sciences segment from a sales and marketing perspective, and that segment now is approximately 15% of our business. Earlier this year, we started investing in the higher education segment and we expect that segment to start contributing materially from FY '24 onwards.
So we continuously have a track record of investing ahead of time in sales and marketing so that we can accelerate growth. In SNC as well, we have been investing disproportionately in sales and marketing, and you've seen some impact of that in the profitability in SNC. But I think from an overall perspective, that part of the strategy to establish NIIT as the first choice, not just for our enterprise customers globally but for our Skills & Career customers in India as well.
So when you said 20% growth and 20% profit to get [indiscernible], should you reckon that from this year FY '23? Because if our margin is sustainable at 24% in this segment, I'm not sure how the numbers will add up at the bottom line level. I'm just alluding to your guidance of 20% profit growth in CLG.
Like I pointed out, we are investing significantly for entry and expansion in the higher education segment. We've already had traction with 2 large public universities. And obviously, to stand up a go-to-market team cost a fair bit of money, and that's really the difference. To some extent, the difference is also because of the inflation in overall costs, predominantly people costs as well as the opening up in terms of premises costs as well as travel-related expenses in the upcoming -- I mean in FY '23.
We will still be in a position to end '23 at [ 20% ] higher than last year in earnings. Is that what you meant? Did I get you right there?
I think I said that we would be able to end the year with 20% growth at 20% margin.
I think, Baidik, one more thing which I would like to point out is I think both the businesses have certain degree of seasonality across quarters. So you should not read 20% to mean 20% across the year because last 2 years are not -- have not been typical years. And in the coming year, one more time, while we believe that end of the year, the growth will be -- we are aiming for 20% growth and 20% EBITDA, the profile that it will follow across quarters may vary. And second is also growth year-over-year versus last 4 quarters may also vary given the peculiarities of last year as well as the seasonality which is very relevant in the coming years. So you would like to check the past track record of our quarterly performances, you would be able to correlate that.
I will also say that there is significant environmental uncertainty. And as the situation changes, if we see any changes, we'll, of course, come back to you. .
The next question is from the line of Siddharth [ Bhasin ], an Individual Investor.
Firstly, congratulations on the great numbers. I've been a long-term investor in NIIT which has made substantial wealth for me. Just going on to the future turf, when you just talking about growing the SNC business and disproportionate investments, could you give us more data on the same like what are the -- what do you mean by exactly by disproportionate investments in terms of quantum? Secondly, with respect to the demerger, [indiscernible] respective companies going to, that will be significant. I'm assuming real estate assets as well. Could you give us the valuation of the same?
And secondly, while taking the decision the Board would have come across certain numbers in terms of valuations of either companies on a stand-alone basis, which would obviously be greater than the valuation of NIIT right now as it stands. So would you be in a position to share the sum of the parts valuation so that there's less information asymmetry in the market, because different individuals seem to have different numbers for the same. And thirdly, in a market in the U.S., which is talking about recession, how do you see training as a skill set being prioritized, where NIIT will then have an opportunity to grow and maintain margins?
Siddharth, first of all, thank you very much for your very kind words in the beginning. I think it's a great source of encouragement for the team. Second, I have to compliment you on very deep understanding of our businesses. So indeed, you are -- have been studying this company for long. I'll request Sapnesh to answer some of these questions for you. And if there is any left, then I take it.
Sure. I think I'll try to start with your third question first, and that was, I think, around how do I see recession playing out as far as our corporate business or the business overall is concerned. I think from an overall perspective, in the medium term, every recession has resulted into increased propensity to outsource. And that is really a result of most organizations trying to focus on what is core to them and then work with specialists to do what they may -- what might not be core to them. For most of our enterprise customers and prospective customers, training is not a core business that they are in. Our customers tend to be in the technology space, in the telecom space, in the banking space, financial services, insurance, energy. For all of these organizations, training is not core to their business. They do it because they are good at it. They've done it all along. But they also feel that they are a reliable source for training their own people.
As our customers would testify, our customers find in NIIT a reliable organization who they can trust to deliver as well as themselves, if not better on their training needs. And I think as the propensity of operations increases in terms of outsourcing as they start focusing more on -- more and more on their core services, NIIT will have an increasing right to win given how well we have done with our existing customers. So that's really my take on recession. Now in the short-term, we might see headwinds as organizations look at optimizing their spends overall. But in the long-term across the last 2 or 3 recessions that I've had to participate in or have experienced, we've seen an increased propensity to outsource.
I think you had a couple of other questions. I think one of your questions was how would -- we value the 2 organizations separately. I think that's really for your community to decide rather than for me to put a price on the organization. I think it's going to be in the eye of the beholder. What I think, we will continue to execute on is to do our best to create value for our customers and to have as much growth as much profit, and do all of that to the higher standards in terms of FX. That's what we will guarantee. And I think if we do that for our customers, growth will come and our customers and our shareholders will value us for that. So that's really my take on it. I'm not the one to value, I think it's going to be in the eye of the beholder.
But I'm sure when that you are going to have -- splitting the company into 2. There's an SOTP I'm sure that comes at your desk in since individual investors often don't get to know as much data as institutions or larger investor. So just in the interest of fairness if possible, the [ research ] numbers have come across to you, if you could share those. And secondly, in terms of those other assets of the company you may own, how would you value those and are we valuing them at this point of time and which company are you putting them in?
Okay. So let me try to solve -- mentioned this. First of all, there is no information asymmetry between what a large institution know -- I and you know, everybody has the same information. By law, we've mandated and as a practice, we have done so from day 1. So whatever data that is available, and we do not like to create a speculative practice and speculation around what the price might be, it will be very, very unfair. I think our job is to ensure that we create value for our customers. Our actions result in they're paying us and that creates value for our shareholders. How the shareholders' value that is visible in the way.
Now for comparison's sake, typically, the CLG business gets value versus the outsourcing -- services outsourcing companies like IT outsourcing companies. And given the unique position we are in, typically, we believe statistically that we get value at a premium to our equal-sized companies, same-size companies. That's just experience and that's nothing -- I'm not adding data to that. As far as the Skills & Careers business is concerned, they get valued more like the companies of similar nature, which are there, not too many of them are listed, but from private valuations and whatever other methods that we figure that are there, you could think of comparative valuation. But please take that as my guidance. We are not here to guide you on how the valuations will be. What we can tell you is what the company's strategy will be in terms of the business.
The third element of the question that you had was assets that the company has. Both businesses have their assets clearly marked out because, a, many of them are in different geographies. And even the soft or the hard assets are clearly marked. They're -- having said that, there are common soft assets and both entities will have access to those soft assets. In terms of real estate, the company has never been -- has been asset-light and does not have a lot of real estate, but the real estate whatever there exists at this point of time in this part of the world, would remain with NIIT limited. And that's what is mentioned in the scheme of arrangement, and that is shared with everyone.
Absolutely. I must say NIIT's management has always been transparent in a way. And I've had a great journey with this company for the last 4 years. And as I have mentioned before, the stock prices [ ever since ] the '17 levels, and I hope to see it to go to 10,000, and I'd be great and truly driving on it. Just a shout out to Mr. Kapil Saurabh as well. Yesterday, I had issues in terms of being able to get rid of a call and he was very prompt in resolving my issues. Thank you so much, and thank you so much for all your answers and keep up the good work. Thank you so much.
Your comments mean a lot to us. Thank you very much.
The next question is from the line of Priti Panchal, an individual investor.
My question is regarding employee benefit expenses. In the quarter 4, the employee benefit expenses has reduced. Whereas in the presentation, it is mentioned that the employee numbers are increasing. So I just wanted to understand the contradiction between these 2.
Employee benefit expenses. Have you read those from the published -- are you reading stand-alone results? Or are you reading consolidated?
Both. It's a reducing in both.
Okay. We'll just handle the question because typically, we have a summary sheet in front of us, but we'll get you an answer to that question.
The next question is from the line of Hashil Setia from AUM Fund Advisors.
I want to clarify on the previous participant's question. When you said that the revenue guidance of 20% and EBITDA with a margin of 20%...
Sorry to enter a Hashil, I would just request you to move your mouthpiece slightly away from you. There's static from your line. .
When you earlier guided with a revenue guidance of 20% and EBITDA margin guidance of 20%, so does that mean that going ahead that there will be an EBITDA degrowth going into FY '23 for the CLG business?
Like I pointed out, the EBITDA we are guiding at about 20%, predominantly on account of the following: number one, additional investments in sales and marketing; and second, we are also going to see or we are anticipating travel and premises costs to resume, and that's the reason for the guidance.
Okay. And that is just for the CLG business, not the company as a whole, correct?
That's correct. That's correct.
Okay. So which means that your EBITDA on an approximate estimate would be around INR 270 crores for the next year, assuming that Skills & Careers business remains flat at 0%?
Give or take, yes. That's the math. That is the math we take for the numbers we just gave you. That's the math.
Okay. And sir, the second question...
Exchange variations to that -- exchange variations. And then again, like I pointed out earlier, we are in an uncertain environment at this point in time. And in case we see any uncertainties in our business, we will come back to you.
Okay. So INR 300 crores, approx. INR 299 crores, EBITDA will be INR 270 crores going ahead for the next year. And sir, I had a second question. Earlier, we were of the view that we were hiring of the schools business. So what changed that now we are clubbing it with the CLG business?
I think from an overall perspective, that business is less than 0.5% of our overall business. And from a materiality perspective, it is insignificant. We are -- like we pointed out earlier, the CLG business has been merged into that entity.
Okay. So are we planning to add further resources in the schools business?
So like I pointed out earlier, we stopped taking on new contracts. We have some existing contracts, which we are servicing as promised to our customers, and we will continue to service those contracts until those contracts stay in force.
The next question is from the line of Srinath N. from Motilal Oswal.
I had just 1 or 2 questions. If I read the exchange release, right, the dividend was one of the agenda of today's Board meeting but there's no mention of a final dividend or any such thing. Any clarification on that?
Yes. So I'll respond. If you were there in last Board meeting, or last call, then I would like to remind that, in quarter 3, the company had given an interim dividend and that was given -- yes, that was given in line along with the statement, which is in the transcript also, saying that given that the company will be in the next 12 months in the period of restructuring or reorganization and the scheme of arrangement is in force, the Board felt that it will be prudent to consider any dividend only after completion of the scheme of arrangement. Otherwise, there will be technical difficulties in figuring out how to split that between the 2 companies.
Right. And related question is...
We have guided that the next dividend would therefore be considered at the end of the scheme of arrangement. And by the 2 companies, each individually. And that will be the more prudent thing to do. And to that extent, therefore, there was no announcement of dividend this time.
Right. And next question is on the cash balances, which is actually deflating our return ratios. The 2 go hand in hand actually, payout would have actually reduced the cash balances and improve our return ratios. And also the second point is, I remember having read that the cash is going to be equally divided between the 2 you spoke of, other assets. But the cash, which is at around, I think, [ INR 1200 crores ] is going to be equally divided between the 2 companies. Is that reading right?
No. Your reading is wrong. We had actually shared that about INR 500 crores would be given to the NIIT Learning Services Limited and the balance would be with NIIT Limited, would remain with NIIT Limited. And we had also explained the rationale that the NIIT Learning Services Limited, which is the CLG business, is a cash-generating business. And at this point of time, this would be sufficient to look after their growth ambitions as well as the need that they have from time to time. On the other hand, NIIT Limited is in an investment cycle right now and there -- good cash in the short- and medium-term before it starts generating enough cash to look after its own ambitions.
So that is as far as the cash thing was -- the cash division was concerned. I would also like to comment that while the return ratios in short-term may appear the way they are, and you are right, but I think given the uncertainty in the environment and a very specific inorganic growth plan that the company has embarked on, of which one action happened in the second part of last year, I think this cash in the kitty will create a state of readiness for both businesses to look at appropriate opportunities and take advantage of that. So we believe that at this point of time, having cash in the balance sheet is actually a very strong positive for the company.
I must also mention that many of our customers look at the financial stability of the company in these uncertain and volatile times before they would consider us for the award of the contract, including one very recent one, which we got 2 quarters ago, where I think the financial due diligence for us to look at the financial stability, and they were greatly comforted by the fact that we had sufficient cash to handle any ups and downs in the environment.
The next question is from the line of Sahil Sharma, an individual investor.
Sir, congrats for a good set of numbers. I want to understand [indiscernible].
Sorry to interrupt you. Mr. Sharma, your voice is breaking up. We cannot hear you clearly. Request you to move to a better reception area, if possible?
Can you hear me now?
At the moment, yes, we can. You may proceed.
Sir, I was asking that in the SNC business, as far as we understand it as outside investors, this is a very sort of crowded or with a high competitive intensity kind of space right now, with a lot of competition from PE-funded startups as well. So what I wanted to understand is that on the SNC side, like what is the strategy for NIIT that differentiates our offering to our customers?
I'll ask Sapnesh to answer that.
Thank you. And thanks for a very good question. I think the most fundamental thing that differentiates us is the same that has differentiated us over the last 40 years. It is our ability to use technology, learning pedagogy and learning design to ensure that the learning outcomes that our students aspire for are actually created. And that is really why NIIT's brand holds the trust of its students. While I would agree that the market is crowded, there are many organizations who offer all types of training programs. But I think what we are proud about is our ability to deliver the outcomes that corporations and employers very specifically valued.
And that is seen by the testament that the students who graduate from NIIT are often able to get jobs that pay twice as much as the students who got jobs directly placed from campus. So that brand trust that we have earned over the last 40 years, which is driven by the pedagogy, the technology, the design that we use that ensures that the outcomes that we promised in our training programs actually get delivered and the students who graduate have the skills to be able to perform the day they start working.
Okay. I also wanted to understand in terms of the CLG business. You have mentioned in one of the previous conference calls that we have like a 30% deal win rate. And in a separate conference call, you have also mentioned that actually our capture of the market share has accelerated in the COVID period. So what I'm trying to understand is that what is the rationale behind the higher sales and marketing spend in the subsequent quarters, given that you're already doing very well in terms of capturing the deals and maintaining market share?
I think that's an excellent question. I think as pointed out often on these calls that the learning outsourcing market is a significantly under-penetrated market. At this point in time, fewer than 25% of the companies in the Fortune 1000 outsource appreciably, and so we have very significant headroom. And I think given the fact that we are doing better than competition, it is only upon us to invest and ensure that we create distance between NIIT and competition and gain higher market share in the shortest period of time. And that's really the reason for disproportionate investment in sales and marketing as well as creation of new and expanded capabilities.
The next question is from the line of Deepak Poddar from Sapphire Capital.
Sir, I wanted to understand specifically on SNC segment. Now we did speak -- I think we are looking at revenue to grow about 50% and maybe a small breakeven or profit this year, FY '23. So I just wanted to understand, like next 3 to 4 years, how you see the trajectory for SNC Group -- SNC segment EBITDA margin? Yes.
I think over time, we expect high teens to almost 20% margin. We've guided that this business has the opportunity to grow 5x over the next 5 years. And as the business accelerates and reaches a critical mass. We expect the margins to go into high teens and over time into the 20% range.
High teens. And next 1 to 2 years -- now I think in the fourth quarter, we were at about 2% EBITDA margin, right? So ideally one should envisage that this margin percentage should keep on increasing in the next 1 to 2 years as well?
No, I think what I've said is that we expect to either be just about breakeven on the EBITDA margin for the SNC business. Like Vijay also pointed out that the business is in an investment cycle at this point in time. And we expect that the margins will be just about breakeven or thereabouts.
Understood. Understood. And understood on this. And my second query is on your demerger. Now sir, I just wanted to understand that in terms of the merger, is there any cost angle that there were some synergies that we were getting on this combined entity, and because of that demerger, that synergy will go away or it will add some duplication of that -- some cost. So any kind of comment on those things would be helpful.
I think -- and I think you may have heard this when the scheme was announced as well. The 2 businesses are significantly separate, but they are joined by our culture and our resource and our brand. As we separate the 2 businesses, we will have some additional costs with respect to overheads in terms of HR or finance and so on and so forth. But outside of that, the business related expenses are significantly separate.
And I think most of the synergies that -- or the common resources that Sapnesh said are more of the soft nature. And I think there, the management teams, which will go to each site, will carry that tradition and culture forward. So what we see is a significant upside versus the small cost that may be there in short-term.
I understand.
Independent decision-making, agile decision-making and investment capability will create significantly more value for our customers as compared to the marginal increase in cost.
Operator, I did want to have Mr. Sanjay Mal, who's the CFO, to answer the lady's question on employee benefits. So just Sanjay, please.
So there's a question that in quarter 3, this Q4 versus previous quarter, there has been a decrease in employee benefit expenses. This is around INR 22 million, as you would see from the results. This is primarily on true-up of provisioning in relation to actuarial valuations on leads and lead benefit from financial benefits. As we all know that the interest rates have basically gone up and the discount rates are accordingly factored, which leads to basically a lower provisioning in this quarter.
Of course, there has been a net addition which has also had the impact of -- net addition of people which has had the impact of higher costs. So the net impact basically is about INR 22 million after truing up of the provisions on account of provisions in lead [indiscernible] and related expense, and the addition into the number of people.
On an annual side.
Yes. So this true-up is done every year at this point of time, and that's what has happen. Is there a last question that we should -- there are 5 people waiting for questions. So operator, can we stop at these 5 questions because we already well past the time. But definitely, we would like to answer each one of them. So we can answer one question each, please.
[Operator Instructions] The next question is from the line of Ashish Kacholia from Lucky Investment Managers.
Congratulations on a good set of numbers. My question pertains to the opportunity size for the SNC business that you mentioned. Did I hear correctly that you said it's a $15 billion opportunity?
That's true. So $15 billion to $20 billion opportunity.
And any thoughts that you can share on the logic of this $15 billion to $20 billion?
Yes. I mean I'll start with the fact that there are 5 million people who work in the IT industry. And every year, the IT industry adds an additional -- this year, they've added an additional 450,000. Other years, they've added about 250,000, sometimes 300,000 people. But that's just the IT industry. From an overall perspective, India graduates about 6 million or 6.5 million students each year. From an early career perspective, if you look at 2 years and assuming that only about 10% to 15% of those graduates get jobs straight out of campus, just in the early career segment, we have an opportunity to educate approximately 5.5 million people and help them get the aspirational jobs that they're looking for.
If you go beyond that to people who are working adults, like I pointed out, about 5 million people work just in the IT industry, approximately 1.5 million to 2 million people work in the banking industry, and then significantly higher numbers in India enterprises. Given all of that, I think we have a very strong opportunity ahead of us given the routes that digital transformation has already taken and the acceleration of digital transformation, not just with GSIs and GCCs, but spreading across Indian enterprises as well.
I was at a meeting about 3 weeks ago with among the largest search companies, I'll just not name the company, and from their point of view, they said that digital literacy is going to be equal to literacy in citizen programming, literacy in data and literacy in cybersecurity. So if you look ahead, every person who is a working adult will have to be literate about digital technology. And I think that will only accelerate the opportunity that I just described.
And of this $15 billion to $20 billion, how much do we think we are already kind of addressing as a market or as a capability? And going forward, how do you see that?
I think we have -- what I would say is I am pretty close to the numbers that we have generated. I'm sure you are as well. And I think the headroom is phenomenal.
No, I was just saying out of the $15 billion, what percentage of the market can we target with our capabilities as of today?
I think we can -- like I pointed out, there are 5 million people who work in the IT industry. There are about 300,000 to 450,000 people who join the IT industry each year. So if we -- and while our capability set is beyond that, even if we were to limit ourselves to that capability set, it's a significant percentage of that $15 billion.
The next question is from the line of Shradha Agrawal from Asian Market Securities.
Congratulations on good. Sir, just one clarification on the Skills & Career business segment, you said that you expect the profitability to be just breakeven or thereabouts. So does that mean organic SNC or for the overall SNC business, including RPS? Because if I'm not mistaken, RPS was putting at a good double-digit margin. And if you consolidate RPS for the full year, we should be ideally looking at single-digit margin, if not more for the overall SNC business in this play?
Yes, it is for the consolidated and it really represents the investments we are going to make in the growth of the SNC business. Like guided, we are hoping to be on a trajectory that gets this business to 5x of what it is today in the next [ 5 ] years.
That's true, sir, that was always aspiration that we would want to take this business 5x [indiscernible] size. But I think the directional sense on margins was that margins should ideally look up each quarter. And from the 2% [ EBIT ] margin that we are at, we are talking of margins going down further in full year '23. So how should we read about the profitability trend of SNC going ahead? Because if you just put deviation from an earlier stance of margins to be trending up rather than going down in this business segment.
I think at least in the conversations I've had, and I know of the conversation we as a team have had, we've always felt that for the SNC business, it's very important to be at a fast growth path and be able to ensure that we become the first choice in the first couple of years and then start looking at margin expansion.
Right. And sir, on the Corporate Learning Segment, where are we in terms of split of physical and virtual training currently? And are our clients pressing upon us to go in for more in-person training than virtual training before?
Yes. In Q4, we started to see the beginnings of in-person classes, and I think that is only likely to accelerate.
Any number can you give us to what is the split between virtual and in-person now versus what it was 2 quarters prior?
It's still small as a number. But as things become more normal, this number is likely to grow quite significantly. It is likely to come to not exactly the pre-pandemic levels, but maybe short -- just short of that. But certainly not [indiscernible].
And so one last question -- right. And just on the CLG business again. I mean, last time, you had indicated that we want this business to be 3x of that [indiscernible] like from $150 million, you can expect the business to go to $450 million to $500 million in the next 5 years, implying a CAGR of almost 25%, 26%. And now we are guiding to a 20% growth in this year. So are we building in some conservatism in our guidance for next year? Or how should we look at the medium-term aspiration versus the immediate guidance that we have given out for the segment?
Yes, I think we are preparing ourselves to achieve the 3x that we mentioned. And we know what it would take for us to get there. I think we are taking one step at a time. And I'm also cognizant of the environment that you see in the market today. So given all of that, I think our guidance of 20% would make sense.
The next question is from the line of Nirmal Bari from Sameeksha Capital.
My first question is...
Sorry, Mr. Bari, your audio is not very clear. Can you please move your mouthpiece slightly away from yourself and then ask your question? There's some static from your line. Okay. Please go on now, we will give you feedback.
My question is on the 2 order wins that we had in the education sector in the U.S. So one was when these orders that is in the current quarter or the previous quarter. And secondly, if you can throw on the kind of contract that is -- that we have won? And how similar or different would it be from the order win that we had with RECO a few years back in terms of revenue and profitability?
I'll try to answer your first -- second question first. RECO is a regulatory body that regulates the conduct of real estate agents in the province of Ontario in Canada. It is not a university or a college, but it does provide license to operate education for real estate agents. And here, the operative word is licensed to operate. Universities on the other hand, are public universities who don't operate in the license-to-operate model. So that's a big difference.
We have been investments in our higher education go-to-market over the last 9, 10 months. And like I have mentioned, that we acquired large universities as our customers. We are entering the higher education segment for the first time in the United States in many years. And before I start commenting on how and whether those customers are likely to turn out as other managed training services customers of CLG, I want to ensure that we have the ability to experience these contracts. However, our expectation is that these contracts will turn out to be as our managed training services contracts. However, we think that the new segment, and it's not another enterprise in a different segment, we would like to take the time and execute on some of these contracts before we start solidifying what the future contract might look like.
The revenue that we would be generating.
Can't hear you very well.
Yes. So the revenue that we would be generating in this universities contract, would it be from the fees that the students would be paying? Or would it come from the universities in terms of a fixed revenue contract or something?
See, eventually, the universities earn from the students. That's the university's method of making money, and we will be participating in that method. They will outsource the education to NIIT.
The next question is from the line of Rahul Jain from Dolat Capital.
And can this be the last question or one more?
Sure, sir. One more, is there actually.
Yes. Okay fine. We'll handle those.
Rahul Jain from Dolat Capital, please go ahead.
One question and one clarification. Firstly, SNC, are you commenting on anything in terms of what would be the key driver for the growth for FY '23 and beyond for each of the subsegment which is [ in the B2C, in the ] B2B market?
So I think, like I pointed out, we expect the overall SNC business to grow quite significantly in the 50% or so range. And also from a long-term perspective, we expect that business to reach 5x in the next 5 years.
Okay. And from RPS, can you share the revenue [ this part ] of the quarter?
I don't think we offer segment-wise revenue or profitability. What I can say is that they've seen growth, their business has seen growth, and they have maintained their profitability.
Growth on Y-o-Y, not Q-o-Q, right?
That's correct. The seasonality of the India market is secular of them as well as us.
Right. And just lastly, a clarification, you said 20% margin for CLG business, but will that be an [ active ] basis or annual basis because it is just fallen do you expect it to go up 20% on an [indiscernible] basis?
I think what I'm ready to talk about is that for the year, our profitability will be in the 20% range.
Yes. I mean the same way, if you do the math, because it has to become 20% next quarter or at least in one of the quarter it has to go below 20% that's what my question was.
I can to find 3 more ways of telling you that it will be 20% for the year.
[Operator Instructions] And sir, that was the last question. We lost the last participant in the queue. As there are no further questions from the participants. I now hand the conference over to the management for closing comments.
Okay. Thank you, and thank you once again for not only very good questions, but also very good guidance and kind words, which many of you had to say and that would mean a lot to us. As usual, we would be available for any further questions that we may have missed or may not have understood or may not have had the right data. For a continuing conversation and for that, you are most welcome to contact Kapil Saurabh, and he will schedule a call with whoever is responsible for giving the last answers.
So with that, I would like to bring this call to a closure. Thank you once again, and have a nice day.
Thank you. On behalf of NIIT Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.