Rating Rationale
March 29, 2019 | Mumbai
NIIT Technologies Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.300 Crore
Long Term Rating CRISIL AA/Stable (Reaffirmed)
Short Term Rating CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA/Stable/CRISIL A1+' ratings on the bank facilities of NIIT Technologies Limited (NTL).
 
After subdued growth of 4.5% in fiscal 2017 and 6.8% in fiscal 2018, the company's revenue grew at a robust pace of 23% in the first nine months of fiscal 2019, led by healthy growth in the banking and financial services industry (BFSI) and travel and transport verticals. Addition of 29 clients in this period also aided growth. Operating margin improved to 17.6% in the first nine months of fiscal 2019 from 17% in fiscal 2018, with lower administration spend. With healthy order book, revenue growth is expected at 10% in fiscal 2020. Financial risk profile remains robust backed by healthy annual cash accrual, absence of large debt-funded capital expenditure (capex) or acquisition, and ample liquidity in the form of surplus cash of Rs 826 crore as on December 31, 2018.
 
The ratings continue to reflect NTL's healthy business risk profile with diversified revenue mix across geographies and verticals. The ratings also factor in robust financial risk profile backed by strong capital structure and healthy debt protection metrics. These strengths are partially offset by average scale of operations and exposure to intense competition in the information technology (IT) industry.

Analytical Approach

For arriving at the ratings, CRISIL has combined the financial risk profiles of NTL and all its subsidiaries in which the company holds a direct or indirect majority stake. This is because NTL and its subsidiaries have a common management team and strong business and financial linkages. Additionally, CRISIL has amortised goodwill on acquisitions for a period of 10 years.

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Diversified revenue mix across geographies and industry verticals: NTL has a diverse revenue profile with focus on application development and maintenance services in the BFSI, manufacturing and distribution, and travel and transportation verticals. The company also offers IT-enabled services and geographic information system (GIS) solutions through its subsidiaries NIIT Smart Serve Ltd and NIIT GIS Ltd, respectively. Acquisitions strengthen the market position in existing verticals or support entry into new ones, apart from expanding the client base and reducing client concentration. Furthermore, NTL has a geographically diverse revenue profile which insulates it from downturn in any single region. For fiscal 2018, NTL derived only 49% of its revenue from the US, as against the industry average of over 60%, while 31% revenue came from Europe, the Middle East, and Asia, and the remaining from other geographies.

* Robust financial risk profile: Gearing remains negligible with low debt and robust networth. Debt protection metrics remain strong due to steady net cash accrual and are expected to remain robust over the medium term given the moderate capex plan, steady accrual, and healthy liquid surplus. Cash and cash equivalent stood at Rs 826 crore as on December 31, 2018.

Weaknesses
* Average scale of operations: NTL is a medium-scale tier-II player in the Indian software industry with operating income expected at Rs 3,579 crore in fiscal 2019. The company has a scale disadvantage vis-a-vis larger players, as scale of operations largely determines ability to bid for large orders successfully. Furthermore, large scale limits the impact on revenue or profitability of shocks to particular clients, verticals, or geographies. Large IT players are relatively better placed to offset such risks vis-Ã''''' -vis mid-tier players.

* Exposure to intense competition: The business environment remains challenging. Indian IT players will need to scale up operations, primarily due to intense competition among themselves and from multinational corporations that are continuously expanding their offshore operations in India. Other key success factors include acquiring and retaining customers, maintaining an efficient cost structure, and ensuring effective labour retention and utilisation. Protectionist measures adopted by the US remain yet another business challenge for Indian IT companies. However, players are likely to effectively counter challenges backed by the Indian IT industry's inherent strengths.
Liquidity

Liquidity is healthy, driven by expected annual cash accrual of around Rs 400 crore over the medium term, cash surplus of Rs 826 crore as on December 31, 2018, and no significant long-term debt obligation. Utilisation of non-fund-based limit of Rs 198 crore was moderate, averaging 61% in the 12 months through February 2019. Accrual, liquid surplus, and unutilised bank lines should be sufficient to meet capex and incremental working capital requirement over the medium term.

Outlook: Stable

CRISIL believes NTL will maintain its business risk profile over the medium term, supported by its established market position and diversified revenue mix. The company will also maintain its conservative financial policy, and hence, its capital structure.

Upside scenario
* Significant and sustained growth in revenue, resulting in increased scale of operations
* Sustained improvement in profitability

Downside scenario
* Lower-than-expected revenue growth and profitability
* Weakening financial risk profile and liquidity due to large debt-funded capex or acquisition.

About the Company

NTL was established in April 2003, when NIIT Ltd (NIIT) spun off its software solutions business (excluding knowledge solutions) into a separate legal entity. NIIT holds 23.51% stake in NTL through a wholly owned subsidiary, Scantech Evaluation Services Ltd.
 
NTL is an established software engineering solution capability maturity model Level 5 player in the software services industry. It is among the top-20 Indian software exporters. Its prominent global customers include British Airways, ING group, SEI Investments, Sabre, and SITA. Over the years, NTL has set up subsidiaries in the US, Singapore, Japan, the UK, and the Netherlands, mainly to market and mobilise projects for the software division. The company has business partnerships with large IT companies across the world.
 
For the first nine months of fiscal 2019, profit after tax was Rs 312.2 crore on revenue of Rs 2,704.0 crore, against Rs 211.4 crore and Rs 2202.6 crore, respectively, in the corresponding period of the previous fiscal.

Key Financial Indicators
Particulars Unit 2018 2017
Revenue Rs crore 3000 2,809
Profit after tax (PAT)# Rs crore 309 272
PAT margin % 10.3 9.7
Adjusted debt/Adjusted networth Times 0.01 0.01
Interest coverage Times 94.5 70.63
#Adjusted

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of instrument Date of allotment Coupon rate (%) Maturity date Issue size
(Rs.Cr)
Rating assigned with outlook
NA Cash Credit NA NA NA 82 CRISIL AA/Stable
NA Letter of Credit* NA NA NA 198 CRISIL A1+
NA Proposed Long Term Bank Loan Facility NA NA NA 20 CRISIL AA/Stable
*Interchangeable with bank guarantee
 
Annexure - List of Entities Consolidated
Entity Consolidated Extent of consolidation Rationale for consolidation
ESRI India Technologies Limited , India Full Subsidiary
NIIT SmartServe Ltd, India Full Subsidiary
NIIT Technologies Services Limited, India Full Subsidiary
NIIT Technologies Ltd, United Kingdom Full Subsidiary
NIIT Technologies Pacific Pte Limited, Singapore Full Subsidiary
Incessant Technologies Private Limited Full Subsidiary
NIIT Technologies GmbH, Germany Full Subsidiary
NIIT Technologies Inc, USA Full Subsidiary
NIIT Airline Technologies GmbH, Germany Full Subsidiary
NIIT Technologies FZ LLC, Dubai Full Subsidiary
NIIT Technologies Philippines Inc Full Subsidiary
NIIT Technologies BV, Netherlands Full Strong business and financial linkages
NIIT Technologies NV, Belgium Full Strong business and financial linkages
NIIT Technologies Ltd, Thailand Full Strong business and financial linkages
NIIT Technologies Pty Ltd, Australia Full Strong business and financial linkages
NIIT Technologies K.K ,Japan Full Strong business and financial linkages
NIIT Technologies AG, Switzerland Full Strong business and financial linkages
NIIT Insurance Technologies Limited, United Kingdom Full Strong business and financial linkages
NIIT Technologies S.A., Spain Full Strong business and financial linkages
NIIT Media Technologies LLC Full Strong business and financial linkages
NIIT Technologies Brazil Ltd Full Strong business and financial linkages
RuleTek LLC Full Strong business and financial linkages
Incessant Technologies. (UK) Limited Full Strong business and financial linkages
Incessant Technologies Ltd., (Ireland) Full Strong business and financial linkages
Incessant Technologies (Australia) Pty Ltd. Full Strong business and financial linkages
Incessant Technologies NA Inc., USA Full Strong business and financial linkages
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Fund-based Bank Facilities  LT/ST  102.00  CRISIL AA/Stable          22-12-17  CRISIL AA/Stable  09-09-16  CRISIL AA/Stable  CRISIL AA/Stable 
Non Fund-based Bank Facilities  LT/ST  198.00  CRISIL A1+          22-12-17  CRISIL A1+  09-09-16  CRISIL A1+  CRISIL A1+ 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 82 CRISIL AA/Stable Cash Credit 90 CRISIL AA/Stable
Letter of Credit* 198 CRISIL A1+ Letter of Credit 210 CRISIL A1+
Proposed Long Term Bank Loan Facility 20 CRISIL AA/Stable -- 0 --
Total 300 -- Total 300 --
*Interchangeable with bank guarantee
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Software Industry
CRISILs Criteria for Consolidation

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