The stock has been at the receiving end of the punters' wrath, shedding over 30 per cent in the last nine trading sessions on BSE. NIIT has been hammered from its ex-bonus high of Rs 3280 to Rs 2279. Barring Tuesday, when the counter attracted some buyers, the stock has hit the lower circuit on the bourses with amazing regularity in the last few days.

While profit-booking in the software stocks has added to a liquidity overhang at the NIIT counter, what sparked off the selling was the unfulfilled profit expectations. Marketmen had projected a 50-60 per cent rise in bottomline to Rs 160-165 crore for fiscal 1998-99, while the actual net profit figure was Rs 143 crore (a growth of 32 per cent y-o-y). Even though the company did not meet the market expectations, the full-year profit figure did not warrant the kind of hammering that the NIIT counter witnessed over the past few days.

For one, NIIT is in the software education and training segment, where the growth is much lower than software development. At present, 55 per cent of NIIT's turnover comes from education, training and multimedia. So, it's not fair to compare NIIT with other software companies.

At the same time, there is no denying that revenue from this stream is showing signs of a slowdown. In FY 1999, the company earned Rs 481 crore from its education business, a growth of only 28 per cent, compared with over 45 per cent from its software development business.

However, the company has taken steps to shift from class-based teaching to web-based learning and online classrooms in order to shore up its margins. Realising that future growth will come from its software division, NIIT is also moving away from client-server based focus to the high margin e-powered business. The launch of E-commerce products and web-based curriculum in FY 1999 will bear fruits in the next one-two years.

Every transition has a cost and NIIT, too, will have to bear the burden of additional infrastructure costs for its foray into web-based activities. In FY 1999, itself, there has been an extra depreciation provision of Rs 14 crore and the profit growth should be viewed in this light.

Another plus for the company is the debt-free status of the company. NIIT has retired all its debt and will now have surplus cash reserves to fund its overseas expansion through mergers and acquisitions. Moreover, the share of the software business in NIIT's turnover is going up steadily, which is a positive sign.

Although the margins have improved very marginally this time around, better days lie ahead. Besides, the bear-hammering at NIIT's counter has resulted in the stock's valuation turning attractive. The current market price of Rs 2279 discounts the FY 1999 earnings of Rs 36.90 by a mulitiple of 61.7. An investment at this juncture is sure to give good returns in the future, given the company's recent thrust towards web-related activities and acquisitions abroad.