NIIT Ltd (NIITLTD) Q1 FY23 Earnings Concall Transcript

NIIT Ltd  (NSE:NIITLTD) Q1 FY23 Earnings Concall dated Jul. 28, 2022

Corporate Participants:

Vijay Thadani — Managing Director and Vice Chairman

Sapnesh Lalla — Chief Executive Officer and Executive Director

Sanjay Mal — Chief Financial Officer

Kapil Saurabh — Investor Relations

Analysts:

Baidik Sarkar — Unifi Capital — Analyst

Shradha Agrawal — AMSEC — Analyst

Saurabh Sidhwani — Sahasrar Capital — Analyst

Sarath Reddy — Unifi Capital — Analyst

Unidentified Participant — — Analyst

Kaushik Poddar — KB Capital Markets — Analyst

Sangeeta Purushottam — Cogito Advisors — Analyst

Amar Maurya — AlfAccurate Advisors — Analyst

Saurabh Shah — AUM Fund Advisors — Analyst

Pradyumna Choudhary — JM Financial — Analyst

Jay Daniel — Entropy Advisors — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the NIIT Limited Q1 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [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.

Vijay Thadani — Managing Director and Vice Chairman

Thank you, and good afternoon to all of you, or good morning or good evening, depending on where you’re joining from. First of all, thank you very much for joining us here on this call. It’s very important for us that you were able to or you are able to spare your time in this busy results season and the fact that you devoted this time to this call, truly appreciated.

The agenda today is to discuss the business performance of NIIT Limited in the first quarter of financial year 2022-2023 and the quarter ending June 30, 2022, is what we will be discussing. So while I have all — the full team from NIIT, including our Chairman, Mr. RS Pawar; Sapnesh Lalla, who is the CEO, right now participating from US, where he is right now; Sanjay Mal, who is the CFO; Kapil Saurabh, who leads the Investor Relations and M&A function; Prateek Chatterjee; as well as some of our directors on the Board who are on the call from different locations, including my colleague, Rajendran, who is the Joint Managing Director. So all of us are here to listen to your comments as well as try to answer all your questions.

The only thing I would like to paraphrase this meeting before I request Sapnesh to give a briefing of what happened in the quarter is that it’s been another quarter of strong performance despite rapidly changing macroeconomic environment, increasing global uncertainty. I think I feel very good about the fact that both businesses have done well in this quarter and are on their trajectories that they had planned for themselves, the trajectory may have a few bumps, which Sapnesh will talk to us about. But overall, the trajectory remains strong. And I think the capability, the brand presence, as well as the strong culture that NIIT has enjoyed over the last 40 years and a strong position in the minds of our customers gives us a lot of confidence for the future.

So with this, I would request Sapnesh to first provide an update on the operating performance and also talk about the business seasonality, which does affect us from time to time. And then based on your questions, I may also provide an update on the reorganization process that we had started earlier this year.

So with that, over to Sapnesh.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Thanks, Vijay, and thanks, everyone, for joining this call. It means a lot to us. As a quick reminder, please note that based on the proposed reorganization of the company, the residual institutional business, which was earlier classified as an asset held for sale is now classified as continuing operations. Financials have been consolidated in the current as well as previous quarters for like-to-like comparisons.

Let me start with the overall highlights. The revenue for the company stood at INR4,048 million, it was up 34% Y-on-Y and 8% Q-on-Q. Both of the businesses achieved robust growth on a strong base from last year. Excluding the inorganic growth, I wanted to remind everyone that NIIT acquired RPS Consulting in October of last year. So if you were to exclude that acquisition, the revenue was up 23% from an year-on-year perspective. The EBITDA was at INR740 million, it was up 5% year-on-year. This includes the impact of the ramp-up in planned investments and a partial resumption in travel and premises costs.

Net other income was INR3 million, it was down quarter-on-quarter versus last year primarily due to the mark-to-market impact on fixed income investments of the company because of the rising interest fees on bonds. The tax was at INR127 million for the quarter. Please note that in Q4 of last year, we had a one-time gain in taxes as per the accounting standards. Profit after tax was at INR443 million, resulting in an EPS of INR3.3.

Coming to Corporate Learning business, the revenue was at INR3,125 million, it was up 6% Q-o-Q and 18% Y-o-Y. In constant currency, the revenue was up 3.2% Q-o-Q and 14% Y-o-Y despite environmental headwinds. The EBITDA was at INR739 million, EBITDA margin was 24%, it was down 57 basis points on a quarter-on-quarter basis.

As guided earlier, margin was down Q-o-Q, predominantly based on investment and transition for multiple new contracts that we acquired earlier or late last year. Entry into the education segment as guided earlier and for both the accounts that are in transition as well as for the entry in the Education segment, we expect to ramp up revenues over the next two quarters. We also had a planned ramp-up in sales and marketing expense as we have guided over the last several quarters. We will invest disproportionately in sales and marketing and we are continuing to do that. We also had partial resumption of travel and premises expenses in some of the geographies. Our investments are continuing to help our front office, ad and scale contracts with marquee customers.

During Q1, we signed four new contracts, two customers in the life sciences segment, one in the technology segment, and the last one, a large conglomerate business. The tally of managed training services customers now stands at 68. The visibility at the end of Q1 was at INR304 million. We continue to see a healthy pipeline of new customers as well as opportunities for expansion of our wallet share across existing customers.

As shared earlier, many of the existing customers have reduced their consumption of training at levels — from levels as the pandemic hit. While spend stabilized at lower levels in FY ’22, growth started to bounce back as a result of proactive investments in sales and marketing and in new capabilities, which the Corporate Learning Group continued at — which allows the Corporate Learning Group to continue to improve its competitive position in the market.

The growth was driven by accelerated ramp-up of new customers as well as expansion in the share of wallet of existing customers. The sharp increase in volatility last quarter impacted the volume of a couple of our customers. We expect the pace of consumption to pick up as the uncertainty starts to wind out, this was reflected in 3% Q-o-Q growth in constant currency versus our earlier expectation of 5% Q-on-Q growth.

Like I stated, while a large majority of our customers have grown but a couple of significant customers have experienced lower volumes this quarter, favorable impact of exchange rates has helped achieve 6% growth in INR terms. I expect the near-term headwinds to continue to have a marginal impact over the next couple of quarters. Based on this, the base case organic growth for the year is likely to be in the 15% to 16% range in constant currency terms versus the 20% constant currency growth expectation we had set earlier this year.

In reported terms, however, we continue to expect 20% growth and greater than 20% margins at prevailing exchange rates. For Q2, we expect about 3% growth. on a quarter-on-quarter basis. In terms of our preparedness and capability set, we are more than confident in our ability to execute. We are scaling up our investments and believe that in the medium to long term, our growth trajectory of 20% to 25% is quite intact.

In our Skills & Career business, revenue for the quarter was INR923 million, this was up 145% on a year-on-year basis and 16% on a quarter-on-quarter basis, not including the revenue from the acquisition of RPS. Organic growth was at 54% year-on-year, driven by significant growth in key product lines, including StackRoute and TPaaS. StackRoute and TPaaS grew at 114% year-on-year and contributed 39% to SNC revenue in Q1. This business has shown a smart recovery and is on a robust growth trajectory.

EBITDA was INR1 million as compared to a loss of INR51 million in Q1 last year. The business is a strong digital learning platform across domains for both career seekers and working professionals, leveraging the strength of our brand, deep expertise and pedagogies and the use of technology in training. The business provides training and emerging digital technologies to working professors, a segment which is seeing strong demand due to digital transformation across businesses.

We continue to see a multiyear cycle for growth and demand for skilled talent. Given the large opportunity, we have accelerated investment in this business, which has helped us lift the revenue run rate. Between StackRoute, RPS and the enterprise business, we have a strong coverage of GSIs, GCCs and other large Indian enterprises.

With a wide range of offerings for deep skilling and digital skills, including programs for 5G, cloud technologies, cybersecurity, game development, data science, and full stack product engineering as well as programs in digital marketing, business development and virtual relationship management for digital enterprises, we are well equipped to help our customers with their talent transformation needs.

NIIT has contributed to the growth of the IT industry over the last 40 years and continues to help the industry deal with its talent shortage. We are continuing to help organizations onboard over 10% of the new hires and ensuring that they are day one and hour one ready. The sharp increase in the volatility last quarter impacted the volume for a couple of our customers, as I pointed out earlier, we expect this pace of consumption to pick up as the uncertainty starts to wane. While the large majority of our customers have shown growth, a couple of the customers had lower volumes than we had expected.

We are now, as I mentioned, onboarding over 10% of college graduates entering the technology careers in India and making them first day, first hour ready continues to be a key goal. Our B2C programs are ramping up and helping the learners achieve a very strong career out — very strong career outcomes. Learners that join us have been getting offers that are almost double the average of starting salaries for on-campus hires with recent starting offers as high as INR10 lakhs.

Our balance sheet metrics continue to be strong. Net cash position improved quarter-on-quarter by INR158 million to INR12,592 million. The DSO was at 49 days as of end of June versus 48 days end of previous quarter. Our ROCE has improved sharply over the previous two quarters, it stands at 20%. The operating ROCE, excluding cash on books, was at 81.9%.

I think overall, the opportunity in front of both of our businesses is robust, and I believe we are in good stead to address that opportunity. The global corporate training market is a large INR350 billion to INR400 billion market and NIIT has established a strong right to win with strong differentiation and value creation for customers in terms of both effectiveness and efficiency.

We continue to expect strong growth, strong and consistent growth, strong margins in an asset-light high ROCE business body. For our SNC business, our opportunity continues to be strong. India has a strong — high young population with a high graduate enrollment ratio into higher education. NIIT has been a premium provider for technology training to individuals and enterprise learners over the last 40 years.

Over the last two years, the business has pivoted to a digital learning platform. We now have a strong right to win with investments in platform, curriculum, proven outcomes and strong relationships with GSIs and GCCs. NIIT has established a right to win that is an envy of a number of our competitors. We will continue to pursue investment opportunities, both organically and inorganically to drive growth across the different dimensions that we have talked about earlier. We would like to pursue opportunities that help continued expansion of our corporate business through expansion of geo coverage, the addition of new capabilities and penetration into new customer segments.

For SNC, we’ll continue to invest to achieve leadership in digital learning. In summary, we continue to see a large opportunity and are confident for achieving multiyear growth. We have a strong competitive position and the right to win in the markets we operate in. Near-term uncertainty may have short term impact for the next couple of quarters post which we expect growth rates to pick up. Growth in SNC business has remained on track, and we expect that it will continue to be robust. We remain on track to deliver the guided margins of over 20% for CLG and a small EBITDA profit for the SNC business for the full year.

That was the set of highlights I wanted to present as prepared comments. I’d now hand it over back to Vijay.

Vijay Thadani — Managing Director and Vice Chairman

Thanks, Sapnesh. I think, at this point of time, all that I want to explain is about the scheme of arraignment, the reorganization that is — for which we had briefed you earlier in the year. And a quick update on that is that the composite scheme of arraignment was filed and we have received all the SEBI and stock exchange approval, which were required based on which it was filed with NCLT.

The first motion gearing of that was completed on July 25 and orders have been reserved. We expect the order to be released in the next four to six weeks with direction for convening meetings or seeking necessary approvals from stakeholders — various stakeholders, including shareholders. So that’s the update. In short, the theme of arrangement is on track as per the original timeline of nine — one year plus minus that we were anticipating.

So I would stop here and now open this floor for questions — for Q&A, my colleagues who are on the call as well as some more who are elsewhere in the world would also participate as maybe be required.

Over to you, operator. If you can please open it for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital. Please go ahead.

Baidik Sarkar — Unifi Capital — Analyst

Gentlemen, good afternoon. Sapnesh, so the quarterly acceleration in CLG was obviously good, but there seems to be some softness on the order book. How should we read this over the medium term? And if you could perhaps carve out the percentage of our order book and revenue dependency on sectors that are perhaps aligned with cyclicality, right, like Canadian and North American housing and so on?

And secondly, Sapnesh, given the sharp inflation on the cost front. Is your pricing environment supportive of the new cost structure? And would you reckon we have the pricing levers in the quarters to come from the margin front in CLG?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Thanks for those questions. If I understood your question right, you wanted to know, from a growth perspective, are we able to absorb the challenges that you have outlined from a growth trajectory perspective. And second question was from a margin perspective, with cost pressures, will we be able to manage our margins? Did I get the questions right?

Baidik Sarkar — Unifi Capital — Analyst

That’s right. That’s right. If I could just rehash the first one. Look, I think the commentary on the order book, especially the visibility of order book over Q3 and Q4 of last year was very different from, I think, what we’re expressing today. It’s quite dramatic actually. So if you could just kind of help us read the situation better.

Sapnesh Lalla — Chief Executive Officer and Executive Director

So let me answer the question on the visibility front first. Our visibility is quite a bit dependent on the renewal cycle for contracts. And I don’t believe the change in visibility has been dramatic. It’s gone down marginally from, I think, about INR328 million to INR304 million in spite of addition of four new contracts and that’s because of the timing of some of the renewals, which happened towards the end of the calendar year. So I don’t believe there is dramatic change in the visibility. Like I pointed out, we continue to have strong velocity in terms of getting new customers and that velocity has only increased over the last few quarters.

To answer your first question, which was, are we able to continue to see the growth opportunities? Like I pointed out, in medium to long term, we are able to continue to see the growth opportunity. Like I mentioned, we’ve seen softness or lower consumption of training across a couple of our customers. While the large majority of our customers have increased consumption and we’ve seen stronger quarter-on-quarter growth across a large majority of our customers. Like I mentioned, a couple of our customers have lower consumption over the last quarter given the uncertainty. And I expect that consumption will pick up once the uncertainty eases.

I think you had a third question, it was around margin. Like we had guided, we were expecting margin to go down from the earlier highs of 28%, 29%, 30% to gradually get to approximately 20% margin. The corporate business, at its typical cost basis, is about a 20% margin business and we expect it to normalize to about 20%.

Baidik Sarkar — Unifi Capital — Analyst

Sure. And sir, please come again on the growth endeavor for the coming year. Did you say constant 20% and reported 17%, did we get that right?

Sapnesh Lalla — Chief Executive Officer and Executive Director

I’m having a hard time hearing you. Say that again?

Baidik Sarkar — Unifi Capital — Analyst

Yeah. On — could you please come again on your reported growth endeavors for the year. Did you mention 20% constant currency and about 16%, 17% in reported growth? Was that the number that you gave out?

Sapnesh Lalla — Chief Executive Officer and Executive Director

The other way around. We — I said —

Vijay Thadani — Managing Director and Vice Chairman

Other way around.

Sapnesh Lalla — Chief Executive Officer and Executive Director

That we will do about 15% to 16% in constant currency and about 20% in reported currency which is INR.

Baidik Sarkar — Unifi Capital — Analyst

Sure, sure. Thanks. And can I just squeeze in one more question on the SNC front, great acceleration there. Could you perhaps explain how our customer acquisition strategy here is working across B2B and B2C segment? And I asked this because, at your current margins, obviously, your customer acquisition cost and the cost of delivery is quite high. So by when do you think we will reach an equilibrium of good growth as well as margins coming back, if you could just expand on that, please?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So as I have pointed out in the past, we have had a head start on the customer acquisition side, specifically with respect to GSIs and GCCs and we consolidated that position with the acquisition of RPS Consulting. So across the large employers of technology talent, we have a strong position. And we are — we have a strong right to win. And we have a very efficient customer acquisition with large GSIs and GCCs. Several of the top GSIs and GCCs are our customers and we continue to grow our business with them.

Over the last two years or about 19 months, we pivoted our B2C business from a brick-and-mortar business to our digital platform-based business. That business is in its ramp-up stage and is requiring cash as an organic initiative and that’s where we have made investments. But from an overall perspective, I expect that business to grow and grow rapidly. I think over the — I think what we pointed out earlier was that this year, that’s FY ’23, we might see a little bit of an EBITDA or by and large, breakeven. But over the next couple of years, we’ll see significant margin for the overall SNC business.

Baidik Sarkar — Unifi Capital — Analyst

Thanks, Sapnesh. I’ll get back for more. All the best.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Thank you.

Vijay Thadani — Managing Director and Vice Chairman

I think I will just add one line to what Sapnesh was explaining about renewals. Sapnesh, you may just want to highlight when do renewals take place predominantly.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yeah, that’s why I was saying that —

Vijay Thadani — Managing Director and Vice Chairman

During the year.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Renewals take place towards the latter half of the year, especially with our Q3, but for most North American organization and several European organizations the calendar year-end.

Baidik Sarkar — Unifi Capital — Analyst

That’s helpful. That adds a lot of context. Thank you. Thank you very much, Mr. Thadani. Thank you.

Operator

Thank you. The next question is from the line of Shradha from AMSEC. Please go ahead. Shardha, please go ahead.

Shradha Agrawal — AMSEC — Analyst

Yeah, hi. Sapnesh, wanted to check that you had indicated that some of your large customers had stabilized at the low level of consumption in FY ’22. So have we started again seeing a decline in those large customers or are they still stable accounts for us?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So, like I pointed out, a couple of our customers who had actually seen accelerated growth over the last few quarters have seen lower consumption. So these are customers that we started out over the last eight to nine quarters. These customers had accelerated at a very fast pace, and given the environment, are seeing a little bit of a decline in consumption. However, as our wallet share has expanded and we have acquired more new customers, the vast majority of our customers have actually seen growth from a Q-o-Q perspective.

Shradha Agrawal — AMSEC — Analyst

Right. And secondly, just to repeat on the previous question, you did indicate that your renewals happen towards the latter half of the year, which is December month for us. But if I look at your historical revenue visibility numbers, we’ve shown Q-on-Q growth in the first quarter each year barring this quarter — barring this time around. So is it something to do with macro weakness this year? Or higher seasonality that we are seeing this year compared to the previous trends — previous years’ trends?

Sapnesh Lalla — Chief Executive Officer and Executive Director

I would relook at what you’re seeing from a visibility perspective. Like I said, part of the visibility is based on new customer acquisition and that part has stayed robust. And the other part is based on renewals. Like I said, some of the renewals get bunched towards the end of the calendar year. But from an overall perspective, we’ve not seen weakness in new customer acquisition.

Shradha Agrawal — AMSEC — Analyst

Right. Sir, but what was behind downgrading the guidance in just a quarter’s time despite? Yeah. Hello, sorry.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Sorry, you’re getting cut off. Can you say that again?

Shradha Agrawal — AMSEC — Analyst

Yeah. So I was just asking as in, what is the reason behind downgrade in CLG’s guidance in just a quarter’s time when we maintain that the new customer acquisition is pretty much on track. So is it just because we have been seeing significant decline in some of our existing customers that is leading to a sharp reduction in guidance in just one quarter?

Sapnesh Lalla — Chief Executive Officer and Executive Director

No, not sharp decline. Like I said —

Shradha Agrawal — AMSEC — Analyst

Sir, from 20%, we are coming down to 16%, 15%. So that’s a good cut down in just one quarter.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yeah. Like I pointed out, we’re seeing a decline in a couple of customers as well as the fact that whenever there is uncertainty, given that training or a fair part of training tends to be a discretionary expense. So organizations tend to hold back or defer training-related investments, also sometimes hiring gets on to a pause at large organizations. And that results into lower consumption of training. It’s a cycle that we have seen for — every time there has been uncertainty in the environment, there is a pause or deferment of training. And I think that’s happening this time around as well.

Shradha Agrawal — AMSEC — Analyst

Sir, and on the SNC business, you’ve maintained your profitability guidance of either flat or breakeven profits, but what about the revenue guidance? I think last quarter, you had indicated a 50% Y-o-Y growth in SNC. So do we still go with that number or has there been any change in that revenue outlook?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yeah. We are staying with 50% plus growth forecast for SNC.

Shradha Agrawal — AMSEC — Analyst

Okay, sir. Sir, just one last —

Vijay Thadani — Managing Director and Vice Chairman

Vijay here.

Shradha Agrawal — AMSEC — Analyst

Yeah.

Vijay Thadani — Managing Director and Vice Chairman

You have to consider this quarter, 145% is actually with the acquisition, which was not there last year.

Shradha Agrawal — AMSEC — Analyst

Right, sir.

Vijay Thadani — Managing Director and Vice Chairman

So if you discount that, then 54%, and that’s consistent with what we had guided.

Shradha Agrawal — AMSEC — Analyst

[Technical Issues] Appreciate that. And sir, we have RPS Consulting, what is the update in terms of cross-selling opportunities or in terms of new customer acquisition on the B2B side through RPS?

Sapnesh Lalla — Chief Executive Officer and Executive Director

I think the first couple of quarters has gone off quite well. RPS has been on track with their numbers. We had a few areas of synergy where execution has started and we’ve seen some value come through that. It’s still a little bit early to go on full-on synergy. The first step was to ensure that they’re part of the family. And from an overall perspective, they reach the speed that they can reach on their own.

Over time, we expect a lot of synergy across customers. We’ve seen some synergy where RPS is working with the GCC in India and that relationship has caused a number of conversations with the parent outside of India. So a number of conversations have started. And as you might expect, over a period of six months, not a hell of a lot has materialized but a number of things have started.

Shradha Agrawal — AMSEC — Analyst

All right. And just one last bit, if I can squeeze in, on the large RECO deal, do we see further deterioration in 2Q on that particular deal or do you think it already reached its bottom?

Sapnesh Lalla — Chief Executive Officer and Executive Director

See, we don’t comment on specific customers for obvious reasons and we won’t comment on specific customers today as well. What I would say is — reiterate that a couple of large customers had lower-than-expected consumption over the last quarter given the uncertainty.

Shradha Agrawal — AMSEC — Analyst

Great. That’s helpful. Thanks a lot.

Operator

Thank you. The next question is from the line of Saurabh Sidhwani from Sahasrar Capital. Please go ahead.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Congratulations on the good growth numbers. I was just wondering if the growth that we have derived in the FY ’22 and also this quarter, is it a momentum because of the accelerated digitalization in corporate world and will this momentum continue? Because for many of the clients, it was necessary to shift their training online and it was impossible to do it offline. So is our growth because of that?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So I would say it is a culmination of — or a combination of 2 or 3 dimensions. The first is, like you pointed out, many organizations wanted to become digital. And with NIIT, they saw a platform to take a lot of their training into digital, which improves access as people are working from them. So that’s certainly the case. The second area is that in NIIT, a number of large organizations are finding a viable partner to whom they can outsource their training and that enables them to focus on their core business.

That’s something that has worked well and has accelerated. We saw acceleration in velocity of new customer acquisition. So that helped. The third is we added on new market segments as well as new capabilities. So we brought on Life Sciences as a segment about 4 years ago. And over the last couple of years, that segment has started maturing and it now contributes over 10% of our business. Lastly, we also invested in a few new capabilities over the last few years and those capabilities have resulted into additional wallet share from our existing customers. So these are a few things that have come together to help us grow over the last couple of years.

As I have pointed out earlier, we have continuously disproportionately invested in sales and marketing. And we are continuing to do that, notwithstanding the uncertainty in the market because every time we’ve seen uncertainty in the market, as organizations come out of that uncertainty, we see a fill up or a ramp-up in the propensity to outsource. So we expect that as things start to stabilize from — and more certainty comes to the market, we will see a ramp-up in outsourcing, and we are well positioned and have a strong right to win to accelerate our business.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. So what do you think that would drive the growth for the next 3 years? Is it — means what capability of NIIT — and what sectors — what verticals of NIIT would drive the growth?

Sapnesh Lalla — Chief Executive Officer and Executive Director

See, we are currently positioned well in a number of key segments. For example, if you look at India, we are well positioned with GSIs, GCCs, banks and large enterprises. If you look at business outside of India, which predominantly tends to be the corporate business. We have strong coverage with market segments that have high mandatory training requirements, high share of regulated businesses. They tend to be businesses in the energy segment, in the commodity segment, in the BFSI segment or the life sciences segment. So we have strong coverage there.

We also have very strong coverage in the technology and telecom segment, where given the nature of — or rate of change of technologies, the consumption of training is high. We have expansion opportunities, for example, in professional services, GSIs outside of India, as well as we have opportunities to grow presence in Continental Europe. So while we are well positioned to accelerate our business, there are also opportunities for us to build capabilities, whether it’s geography or market segment so that we can accelerate our growth.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. And what is the problem that we are solving for higher education in the US? You commented — you told us last time that we have traction from 2 universities in the US So what is the problem that we are solving for them?

Sapnesh Lalla — Chief Executive Officer and Executive Director

See, a number of universities or institutions of higher education in the United States have seen gradual decline in their enrollments. And that decline is because people are looking very critically — or fresh students are looking very critically at the value of degrees in terms of economic mobility that they can get if they acquire that degree. Most degrees are resulting into high personal debt because of the expense involved with the 4-year education model that’s prevalent in the United States.

The ultimate credentials, which result into economic mobility in a shorter period of time are gaining traction and a lot of universities are not well placed to pivot or add alternate credentials to their lineup and NIIT with its vast experience in India as well as outside of India with respect to especially digital training that results – that helps digital — enable digital transformation. We’re able to bring those alternate credentials to universities who can then outsource that part of the business to NIIT and rely on NIIT to service their students for alternate credentials.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. So is this like what upGrad is doing, means they have affiliated courses from various in universities. Is it similar to that?

Sapnesh Lalla — Chief Executive Officer and Executive Director

It is not what upGrad does, I think it’s different from what we do. Our business is an outsourcing business where a university that wants to get into alternate credentials is working with NIIT or is outsourcing that activity to NIIT.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. So they would do that on their own portal and not like — upGrad is a platform basically, and they will have their own portal when they do this with you, right?

Sapnesh Lalla — Chief Executive Officer and Executive Director

It’s 2 different business models. We could get more detail, which will take some time to explain, but the 2 models are quite different.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Yes, okay. And just one last question about RPS Consulting. In the press release, it was mentioned that RTS Consulting, will you be also adding offerings to our MTS side of the business. So, how — what kind of offerings — can you explain that? Means how is it enhancing the MTS business?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Like I pointed out answering the previous question, I mentioned that RPS has a number of GCCs as their customers. And a lot of — I mean, those GCCs have their principles outside of India. So I think there is a misunderstanding on RPS having MTS offers. But what we meant is that RPS has GCCs — Global Capability Centers in India as their customers. And we have an opportunity to work with the principles of those GCCs outside of India and convert them into NIIT MTS customers.

Saurabh Sidhwani — Sahasrar Capital — Analyst

Okay. And one last question. What is the revenue mix here you are thinking would be appropriate for SNC business or TPaaS, StackRoute and the B2C business?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Like I pointed out, we expect a greater than 50% growth in the SNC business for this year.

Saurabh Sidhwani — Sahasrar Capital — Analyst

No. I mean revenue mix, what percentage would be TPaaS, StackRoute and B2C, yes?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Like I’ve said that the NIIT digital business is a fledgling business. We pivoted from the brick-and-mortar business to a purely digital platform. So the large majority of that business is going to come from RPS, TPaaS and StackRoute.

Operator

The next question is from the line of Sarath Reddy from Unifi Capital. Please go ahead.

Sarath Reddy — Unifi Capital — Analyst

Could you help me understand the bridge to the EBITDA? You’re building a business that has an old component where you deal B2B and a newer component, which you used to be strong in, and you’re sort of reinventing it on a digital platform for domestic people who want to learn with NIIT. And you’re incurring higher costs in that process. So you will make maybe INR400 crores of revenue or thereabouts this year, which is a high growth. And so you don’t expect to make much EBITDA, maybe breakeven this year. But in the next year or 2, you hope to make a significant EBITDA.

So please, can you help me understand what is significant and percentage? What is the bridge from the current cost structures you have? Will you raise prices to make money or will you continue to offer same prices but benefit from just volumes, or are there some spend that you’re incurring now, which are of a start-up nature, which you don’t expect to incur next year onwards. I’m just trying to see clearly.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yes, I think the answer lies in what you already said. Vast majority of domestic business is actually profitable. The RPS business, the TPaaS business and the StackRoute business is above — all those which form a large majority of our business is profitable business, reasonable profitability.

That profitability is actually getting invested, that profit is actually getting invested and standing up or pivoting the B2C business onto a platform business. And so the way to think about it is that the business that is already profitable will continue to grow. It is growing, and it will continue to grow and improve its profitability.

There is, however, investment required to stand up the B2C business, because we pivoted from a predominantly classroom-based business to a digital business. That investment cycle has another year or 1.5 years left. And as that investment cycle gets completed, we’ll see unit economics which are profitable in that business. And that business will start releasing profit or stop taking away profit from the business that’s already reasonably profitable. And both the business will start showing profitability.

Sarath Reddy — Unifi Capital — Analyst

No. I mean you’re not answering me. What I — I know what I asked my question actually had the same understanding that you’ve given me. I want to try and improve my understanding. Your new business, the B2C business, which is taking investment, I’d like to understand in what aspects is it taking investment? And how will it turn profitable?

Is it that, for example, you’re spending on advertising or on content creation or on platform development, and these will all be expensed this year and therefore, will take away whatever earnings you have, and you will not need to maintain that rate of spend and therefore, it will turn profitable. I’m trying to understand the guts of how..

Sapnesh Lalla — Chief Executive Officer and Executive Director

You have a pretty good understanding and like you pointed out, we are making investments in all aspects of the digital business. We are investing in customer acquisition, higher than we would normally do in a running business. We have invested in the platform. We’ve invested in digital curriculum. And all of those investments are a large majority of those investments are organic expenses and are getting expensed. As that business scales up, the unit economics become more efficient and start releasing profit.

I mean, I don’t think I’m telling you any rocket science. It is the trajectory that any new business has. It starts off with unit economics that are not efficient. It achieves a product market fit. We think that we have parts of that covered, like I pointed out, the students who are graduating from that business are getting placed at jobs that are paying them almost 2x of what those same folks would have got if they got placed out of campus.

So we are encouraged by the outcomes that — or the transformation that we are able to cause for a student. There are inefficiencies with respect to acquiring customers. There are some inefficiencies with respect to teaching, but those in efficiencies, to some extent, will get solved through scale and to some extent will get solved through improvements by applying lessons we are learning from a sales and marketing perspective.

But notwithstanding what I’ve said, as we implement those learnings and achieve scale that business’ unit economics start improving, and we’ve seen some improvements over the last 3 quarters. I think those improvements will cause the unit economics to become favorable and start releasing profit.

Sarath Reddy — Unifi Capital — Analyst

Okay. And what’s the current split of this INR400 crores or thereabouts that you will do this year, how much will be from the B2C, the new one?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Pretty small. I think about 90%. Like I said, the large majority of that business is the B2B business.

Sarath Reddy — Unifi Capital — Analyst

Okay. And B2B business mix, what’s our EBITDA margin?

Sapnesh Lalla — Chief Executive Officer and Executive Director

I think we are going into detail, which we normally don’t talk about. Like I said, that business, that is BAU business is at reasonable profitability.

Sarath Reddy — Unifi Capital — Analyst

Okay. And what is your — what is the reasonable expectation in the next year and the year after? What would satisfy you as a measure of accomplishment for your efforts?

Sapnesh Lalla — Chief Executive Officer and Executive Director

The next couple of years, we should get to mid-teens in terms of profitability.

Sarath Reddy — Unifi Capital — Analyst

Mid-teens, okay. That’s quite healthy.

Operator

The next question is from the line of Siddharth, an individual Investor. Please go ahead.

Unidentified Participant — — Analyst

Another good quarter in difficult circumstances. So my first — so I have a series of questions. So should I just ask you 1 question at a time rather than putting them all up upfront at once?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Depends on how hard they are.

Unidentified Participant — — Analyst

No, they’re very simple questions. You’ve got answers to all the —

Sapnesh Lalla — Chief Executive Officer and Executive Director

And how long you may take for you to ask all the questions because this conference has going on for some time.

Unidentified Participant — — Analyst

Just 5 minutes. So my first question actually is on the ESOPs. The fact that the company would be issuing almost 2% equity at INR352 a share. So just wanted to know this would be new capital being issued next year?

Sanjay Mal — Chief Financial Officer

ESOPs are — let me try to answer that. These are grants which are made, which vest typically over next 3 years and only when they get exercised do they become stock?

Unidentified Participant — — Analyst

Yes.

Sanjay Mal — Chief Financial Officer

So at the earliest, they will become — and I don’t think it is 2%, but right now, let me pass that thought. What is important is that you can assume that new stock will be issued. If all the ESOP, which are vested, get exercised on the date on which they were vested, they’ll become stock issued at whatever price that previous day was, we issue options at market price.

Unidentified Participant — — Analyst

Understood. Perfect. Perfect. My second question would be on the loss of INR10.5 crores that we have had a mark-to-market. Am I right to assume that this will be written back in the next couple of quarters since we might not have closed the trade and it’s only an M2M loss, which is just a loss on the books at the moment, which will be reversed maybe the next quarter?

Sanjay Mal — Chief Financial Officer

Yes. This is our noncash loss.

Unidentified Participant — — Analyst

So basically next quarter?

Sanjay Mal — Chief Financial Officer

It’s a noncash loss, sorry.

Unidentified Participant — — Analyst

So basically, in — next quarter. Yes.

Sapnesh Lalla — Chief Executive Officer and Executive Director

This is a notional loss based on the mark-to-market, which occurs because of the movements in interest rates, and the prices of the NAV. As the interest rates stabilize, the yield, which is underlying the NAVs will start showing up and it will reverse itself over a period of time. If we do not win — basically have a majority of votes.

Unidentified Participant — — Analyst

Right. So if you then don’t book it, it’s not a real loss. So effectively, next quarter, we may see a INR10.5 crores additional income on our books, noncash?

Sapnesh Lalla — Chief Executive Officer and Executive Director

No, no. You will not additional income. You will have maybe a stability of no interest rates move higher. So not get reversed but this may — over a period of time if things remain stable.

Sanjay Mal — Chief Financial Officer

If interest rates is stable between now and the maturity of that, then it will recoup you’ll get small small gains. But if interest rates go up again there will be a [Technical Issues] so it’s a noncash entry.

Unidentified Participant — — Analyst

Yes. So typically, what I’m trying to understand is the investment would be in the form of a bond. So as the interest rate goes up, the face value of the bond goes down. But since we don’t redeem the bond, eventually at the end of the bond cycle, the issue the bond will pay you the full amount back. So effectively, we don’t suffer a real loss?

Sanjay Mal — Chief Financial Officer

Yes.

Unidentified Participant — — Analyst

Would that be correct?

Sanjay Mal — Chief Financial Officer

Very correct.

Unidentified Participant — — Analyst

Perfect. Perfect.

Sanjay Mal — Chief Financial Officer

Absolutely correct.

Unidentified Participant — — Analyst

Right, sir. Right, sir. Sir, thirdly, I just wanted to know, granular details. We’ve been talking about distribution expenses on sales and marketing. If we could just get some more details on what exactly do we mean by that?

And secondly, on the RECO contract, it comes up for renewal sometime towards right now to the end of the year because it was signed in 2017. Are we hearing anything from the RECO guys on that front?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So the first thing I would say is we don’t talk about specific customers. So given confidentiality reasons and we will not be able comment on when it comes up for renewal or when will we renew it. That having been said, we have a few years on the contract. What was the second question that you asked.

Unidentified Participant — — Analyst

Sir, if I may just add to that question. The fact was the contract, as mentioned in media says 5 years plus an optionality to renew for another 2. So are they exercising that optionality according to you? Are we in that — are we in negotiations about that?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Exactly the same way that I answered earlier. We do not comment on specific customers, and we are not about to change that.

Unidentified Participant — — Analyst

Right. Right. Sir, you also mentioned something about seasonality of the — yes.

Vijay Thadani — Managing Director and Vice Chairman

One quick clarification. While the contract was signed in 2017, we had what was publicly available and we had disclosed is that there is a period of development ahead of start of execution of the contract. The execution only started in the middle of calendar year ’19. So you need to start whatever time line you’re starting from that piece.

Unidentified Participant — — Analyst

Understood. Understood. Sir, you spoke about a certain amount of seasonality in business. So while we have shown growth from, say, Q4 to Q1 right now. And so can you just explain the seasonality that you’re talking about? Or is it what you answered in terms of bunching up of renewals towards the end of the year?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So there is seasonality with respect to consumption and then there is seasonality with respect to renewals. My earlier answer was seasonality with respect to renewals to talk — to answer the point about visibility. In terms of consumption, there is some bunching up that happens in our Q3 or calendar Q4 given the end of year budget completion with several of our customers.

Unidentified Participant — — Analyst

Understood. Understood. Sir, just wanted to know also the impact of the rupee depreciation. You are guiding for 16% growth and 20% growth on rupee terms. So what are we generally pegging the rupee at the moment for our numbers when we are coming to this? And are we able to — and are we able to get — yes, sir and are we able to get direct benefits from our customers in terms of expansion of margins because old contracts are already signed at old dollar terms? Or are there some clauses where then some of that amount is passed on back or something like that?

Sapnesh Lalla — Chief Executive Officer and Executive Director

We don’t go into specific contracts, but the contracts do not have a reverse flow in case currency changes.

Unidentified Participant — — Analyst

Okay. Okay sir, recently you signed a deal with HDFC Bank, there’s Axis Bank, we have — we’ve been doing some trainings. Today, we signed with Bajaj Finserv. So the Bajaj Finserv deal, I saw that the cost of course, is INR2,000 and the rest of Bajaj Finserv paying for it. What sort of revenue accretion are we going to see from this BFSI space in the Indian context in the next couple of years? Or is this more sort of a branding exercise that we’re getting into to basically enhance valuation of the SNC vertical?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So in the BFSI space, we had a significant business across some of the top names, including ICICI, HDFC and now Kotak, as well as Bajaj. And we expect to grow that business in a significant way. That growth is going to contribute to the 50% plus growth that we are expecting in this business.

Unidentified Participant — — Analyst

Okay, all right. All right. Sir, just one last question and then one suggestion. Sir, in terms of the margin compression that we’re looking at here over Q2, Q3 and Q4, would you be able to — could you break it down for us since you said Q3 and Q4 should be better than Q2. So what sort of beat or disruption in margin should we look at on the EBITDA level for, say, Q2 because of the uncertain environment? And do we have a significant exposure in Europe considering the things going on in Germany and UK and France at the moment?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So overall, we expect, and I’ve pointed this out, that the corporate business is a 20% margin business. We are expecting it to be so for this year as well.

Unidentified Participant — — Analyst

Right, right. Just one last suggestion. I mean, I think it’s been a very good luck for us, but we had an old NIIT tagline that you can’t spell training without NIIT. And I think that’s taken the company very far over the last 5, 6 years that I’ve been with you. We don’t have that anymore in our presentations. Would love it if we guys put it in a small place somewhere on some of our PPTs, even though you’ve done an entire re-branding exercise, I think old good things shouldn’t be forgotten.

Sapnesh Lalla — Chief Executive Officer and Executive Director

You’re so right. You can’t spell training without NIIT and a lot of customers believe that. But thank you for the suggestion and we’ll look into it.

Vijay Thadani — Managing Director and Vice Chairman

Truly appreciate it. It’s passionate investors like you that really make the day for us.

Operator

We’ll take the next question from the line of Kaushik Poddar from KB Capital Markets. Please go ahead.

Kaushik Poddar — KB Capital Markets — Analyst

Yes. Both my queries are from SNC division. See, first one is suppose HDFC takes every year x number of trainees. So out of this x number of trainees, how much percent of such X will be going through this program, which you have tied up with HDFC Bank? That is number one. And the number two question is, you are talking of 20% margin in SNC business sometime. When is that sometime?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So the first one, I would say we will not talk specifics about customers.

Kaushik Poddar — KB Capital Markets — Analyst

But in general, so?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yes. Our typical contracts like this are contracts where NIIT would provide a majority of the folks that they would recruit for either that business or that capability or that competence. So in most of these opportunities, the way we would set up contracts is NIIT would be the majority provider of talent for either a specific job role or a certain competency or a certain division of that organization. What was your second question? Your second question was about margins for SNC.

Kaushik Poddar — KB Capital Markets — Analyst

Yes. When we reach the 20% landmark.

Sapnesh Lalla — Chief Executive Officer and Executive Director

I think I said that we get to mid-teens in about a couple of years.

Kaushik Poddar — KB Capital Markets — Analyst

Okay. And the 20%, did you — did I hear you say that 20% something?

Sapnesh Lalla — Chief Executive Officer and Executive Director

The 20% guidance is for the CLG business. The CLG business is a 20% business, and we think that it is going to stay that way.

Kaushik Poddar — KB Capital Markets — Analyst

Okay. So you’re guiding mid-teens in a couple of years for SNC, right? That’s what you’re saying?

Sapnesh Lalla — Chief Executive Officer and Executive Director

That’s correct. It’s going to be close to breakeven, a little bit positive this year, and it should be in mid-teens in a couple of years as the investment cycle turns to a business cycle.

Kaushik Poddar — KB Capital Markets — Analyst

Okay. Okay. And this, say, HDFC or Bajaj or Kotak, whatever you have tied up, these people — this will be for the new management trainees or for whom is this course to be there? Again, you can give a general answer. You need not talk about HDFC.

Sapnesh Lalla — Chief Executive Officer and Executive Director

All of these programs are for fresh hires in different roles though, for each of these institutions.

Operator

The next question is from the line of Deepak Mehta, Individual Investor.

Vijay Thadani — Managing Director and Vice Chairman

We still have a few people in the queue. So can we just restrict it to one question each, if that’s okay with everybody?

Operator

[Operator Instructions] We’ll move on to the next question. From the line of Sangeeta Purushottam from Cogito Advisors.

Sangeeta Purushottam — Cogito Advisors — Analyst

My question is on the margins of the Corporate Learning Group. What you’ve guided is that this is essentially a 20% EBITDA business. The margins that we’ve seen in the last two contiguous quarters have been around 24%. So are you expecting this to decline as the year progresses?

And what would really be behind it in terms of do you expect more costs to come into this business? Is it because of investments in sales? If you could just give some color.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Sure. I think you answered the question, or you’re right on both sides. There are a number of costs that we did not have to incur during COVID. Some of those costs have started coming back. And over the next several months, costs such as premises or travel, both direct as well as indirect travel, they will start coming through. So there are a number of costs that we’ve not had to incur, which we will incur.

On the other side, we have investments. You pointed out sales and marketing investments, but we also have investments with respect to market entry investments like I had pointed out previous quarter, we are entering the higher education vertical, which requires investments and — we will continue to make those organic investments, the result into disproportionate expenses towards sales and marketing. And the combination of some of the costs coming back and the investments we are making to accelerate the growth in business will result into the margin guidance that we have made.

Sangeeta Purushottam — Cogito Advisors — Analyst

Margin guidance, more for the medium term, that is say couple of years as you’re making these investments? And then can we expect that margin to sort of track up as the investments start to bear fruit? Or do you think, on a long-term basis, this is going to be the sustainable margin?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yes. I think this business from a long-term business is a 20% margin business. So both from a medium term as well as long-term, you should look at it as a 20% business.

Operator

The next question is from the line of Amar Maurya from AlfAccurate Advisors. Please go ahead.

Amar Maurya — AlfAccurate Advisors — Analyst

One question from my side. Like in terms of the technology and telecom, energy and natural resources, life sciences and BFSI, in terms of your CLS business, what would be the mix currently?

Sapnesh Lalla — Chief Executive Officer and Executive Director

I think you mentioned a bunch of them in one breadth.

Amar Maurya — AlfAccurate Advisors — Analyst

I’m saying technology, energy, life sciences and BFSI. What would be the broad revenue mix for the CLS business?

Sapnesh Lalla — Chief Executive Officer and Executive Director

For the segments that you mentioned, those segments form the large majority of our business. So the segments that we mentioned, which I think included technology and telecom, BFSI, life sciences and energy. Those 4 segments put together will contribute about 70-plus percent of the CLG business.

Amar Maurya — AlfAccurate Advisors — Analyst

Okay. But then can I get the individual breakup like technology, energy, life science and BFSI?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Let me find that you. Not right off my —

Amar Maurya — AlfAccurate Advisors — Analyst

No, sure, sir. I mean I’ll stay in the queue. If you get it handy — I mean it’s okay. Otherwise, I’ll take it separately.

Sanjay Mal — Chief Financial Officer

Amar, we can take it offline.

Operator

The next question is from the line of Saurabh Shah from AUM Fund Advisors. Please go ahead.

Saurabh Shah — AUM Fund Advisors — Analyst

Sapnesh, is it possible to get some color on this revenue visibility in this continuing pipeline. How is that related to your pricing of the past what industries are these in and over a period of time, I think the question that has been asked consistently is that are these kind of story helping you to taper up to a better margin levels at all?

I know it’s partly related to your discretionary costs, but just on pricing, if you could give us some sense of how this is going out and also if you’re diversifying your industry significantly.

Sapnesh Lalla — Chief Executive Officer and Executive Director

So let me try to repeat your question. Your question was around how our pipeline is and how that relates to the visibility. Is that your question?

Saurabh Shah — AUM Fund Advisors — Analyst

No, what pricing levels do you have in your pipeline relative to the last maybe year or so, as your proposition becomes stronger with some of the customers, you’ve got 4 new contracts, you’ve expanded one contract. Are you seeing better pricing? Do you expect, as you get more embedded with your customers to this to create the next 2 or 3 years, better pricing trajectory? Or this is still at the same levels or at different levels from what we’ve been doing.

Sapnesh Lalla — Chief Executive Officer and Executive Director

We’ve seen improvements in our pricing over the last couple of years. In fact, we baked in both the opportunity as well as cost size in our pricing. And we’ve seen improved ability to increase our price points over the last couple of years.

Saurabh Shah — AUM Fund Advisors — Analyst

What I meant that this current pipeline that you have just now, is that like relative to last year’s because you have often multiyear contracts? Was this like a 5%, 10% better pricing or any guidance you can give us over there?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So each contract has a price increase baked into that contract. I won’t go into specifics of what each contract has. But each contract has, like you pointed out, each contract is a long-term contract and each contract has price increases baked in.

Saurabh Shah — AUM Fund Advisors — Analyst

And shouldn’t that over a period of time — because your cost is all usually front loaded from what I realize, shouldn’t that help you with margins going forward?

Sapnesh Lalla — Chief Executive Officer and Executive Director

In some cases, it does and it has, but then it also has to take care of increased inflation.

Vijay Thadani — Managing Director and Vice Chairman

I’m sorry, but I think there are still a couple of people waiting in the queue. It would be unfair to them. Having decided we’ll have one question at a time. We can take your questions offline, if you would like. Let’s finish this round, and we’ll come back to you.

Operator

The next question is from the line of Saurabh Sidhwani from Sahasrar Capital. Please go ahead.

Saurabh Sidhwani — Sahasrar Capital — Analyst

I was just wondering, we had 66 MTS clients in quarter 4, and now we have 68 and we added 4. So was there a customer attrition this quarter?

Sapnesh Lalla — Chief Executive Officer and Executive Director

There wasn’t any customer attrition. There are times when 1 or 2 customers are not consuming as much of our services as they — to cross over the threshold. And in those cases, we do not include them into MTS customers.

Operator

The next question is from the line of Pradyumna Choudhary from JM Financial. Please go ahead.

Pradyumna Choudhary — JM Financial — Analyst

So just a follow-up on the previous participant itself. So usually, like I — my assumption was that for MTS contract, we have a minimum revenue or some sort of a contract like where there’s uncertainty in terms of revenue. So could you just put some more light on how these contracts are structured to qualify a customer under beef because over the years, this particular calculation mismatch has been there.

Sapnesh Lalla — Chief Executive Officer and Executive Director

So in simple terms, customers outsource either all or part of their training to NIIT as part of their contract. When I say all or a part of whatever they are doing as training activity or part of a training activity, they outsource to NIIT. Sometimes, they do — they consume a lot more training and sometimes they consume less training. For example, at times of uncertainty organizations defer a lot of discretionary training, but consume only a large part of mandatory training.

And therefore, volumes go up and down. our contracts, get our customers to do whatever training they are doing or what they have contracted with us only. They don’t have the ability to bring on others. But if their volumes fluctuate, then the volumes fluctuate. And at times, if they are doing a lot less than what they had anticipated earlier, we downgrade them from an MTS customer to a project customer.

Vijay Thadani — Managing Director and Vice Chairman

We don’t have any more questions. So we can get back to the gentlemen who was asking and I had to interrupt him. It was Saurabh —

Kapil Saurabh — Investor Relations

It was Saurabh Shah.

Vijay Thadani — Managing Director and Vice Chairman

Saurabh Sharma?

Kapil Saurabh — Investor Relations

Shah.

Operator

Checking the line sir. Saurabh Shah, your line is in talk mode.

Saurabh Shah — AUM Fund Advisors — Analyst

So, Sapnesh, I was asking about from a longer-term engagement with your key clients, how do you see the margin situation playing out as you have invested, as you said, disproportionately upfront. And if your costs are also largely upfront, then the margin is higher usually, I would think, at the back end. Even inflation would hurt you less, right, because you have incurred the cost upfront.

So over a period of time, shouldn’t that help you to transition especially with your older clients to a higher margin level. This is for the CLG, of course.

Sapnesh Lalla — Chief Executive Officer and Executive Director

There is a confusion in your mind. It’s not right that most of our costs are bunched at the beginning of the contract. We have some transition costs that are incurred upfront, but that is not the large majority of our costs. The large majority of our costs are direct costs that are incurred during the contract. There are some transition-related costs that we incur upfront and in most cases, the customers pay for at least a part of the transition-related costs.

And like I pointed out, most of the costs are incurred during the period of the contract. In terms of margins, yes, as we start the contract, so for example, in the first quarter or first 5 months of the contract, the costs tend to be a little bit higher. But after that, the costs normalize for the contract. And like I pointed out, we have, in most contracts, inflation baked in as price increases. And we get a package of those price increases. But often, or at times, those price increases are compensated by cost inflation.

Saurabh Shah — AUM Fund Advisors — Analyst

Okay. Sorry, maybe I misunderstood. So when you take on this training contract, isn’t that’s the time when you customize the course material, et cetera, for that particular client. And maybe later, it’s more maintenance. Of course, there could be some incremental change. But how would your typical cost construct for a contract fee, you have 100 for the entire contract time. How much of your initial transition, as you said, then course development, customization and then sort of updating for any changes. I can differ, I understand. But just broadly, is there some range you would be able to share?

Sapnesh Lalla — Chief Executive Officer and Executive Director

So let me correct that perception. I think your perception is that for our contracts, we start with a base rate program. We customize and that’s where we incur costs. And after that, we continue to deliver that. That is not the case for the CLG business. The CLG business is around training services. And those services are provided as such, only a very — only a part of the CLG business is IP based, where we invest in the IP and we then monetize the use of the IP. That’s only for a part of the business, but the large majority of the business is services business where cost gets incurred in line with revenue.

Saurabh Shah — AUM Fund Advisors — Analyst

I see. And from — as you said, you’re spending disproportionately now for sales and marketing, everything, is it possible to give us some sense of what exactly is this expenditure — is it number of salespeople? Is it offices, geographies, any color you can provide?

Sapnesh Lalla — Chief Executive Officer and Executive Director

I think it’s across the board. I mean suffice it to say that we — our expense on sales and marketing grows north of 5 percentage points beyond our growth. So if we grow at 10%, we would invest 15%. The sales and marketing would grow 15%. If you are growing 20%, sales and marketing would grow significantly more than the growth of the business.

Vijay Thadani — Managing Director and Vice Chairman

Saurabh, for more questions we can connect offline. There is 1 more participant in the queue. We’ll just take one more question and then close. Operator?

Operator

The next question is from the line of Jay Daniel from Entropy Advisors. Please go ahead.

Jay Daniel — Entropy Advisors — Analyst

Wanted to know is this training part of services provided discretionary in nature for the customer? And would it get hit quite badly in a recessionary environment — economic environment? Would it be the first to get cut for the company — for the customer, what I mean here.

Sapnesh Lalla — Chief Executive Officer and Executive Director

If you look at our customers, a very large proportion of our customers are customers who operate in a regulated environment. And for those customers, there is large part of training, which is mandatory training, which — or license to operate training, which means if they do not go through that training, they may have regulatory issues or they may get debarred from performing a job because through training, they get license to do that job. However, like you pointed out, there are parts of the training, which are discretionary in nature and as you mentioned, when there is uncertainty, some of that gets deferred.

Jay Daniel — Entropy Advisors — Analyst

Okay. And what is the market opportunity that you’re addressing in CLG, size of — you gave a number at the beginning. I couldn’t catch on to that.

Sapnesh Lalla — Chief Executive Officer and Executive Director

It’s about INR400 billion.

Jay Daniel — Entropy Advisors — Analyst

INR400 billion. Okay. Okay.

Sapnesh Lalla — Chief Executive Officer and Executive Director

Okay. I think that was the last question and maybe at this time, you should close the call.

Operator

Sir, would you like to add any closing comments?

Sapnesh Lalla — Chief Executive Officer and Executive Director

Yes. I think Vijay should — Vijay will be making a couple of closing comments, etc.

Vijay Thadani — Managing Director and Vice Chairman

No. I — first of all, I just want to thank everyone for staying on longer than we had originally planned. It’s nearly 85 minutes, all of you have been there. Really grateful to you for earlier very incisive questioning as well as some ideas which definitely make us smarter for future quarters. We are available the rest of us as well as, Sapnesh, everybody is available to answer any further questions, which either we may have missed or you may remember later.

So with that, I thank you for joining this call. Looking forward to your continued cooperation and support. With that, we should — we would like to sign off. Operator?

Operator

[Operator Closing Remarks]