NEWGENNSEQ2 FY23October 18, 2022

Newgen Software Technologies Limited

8,787words

115turns

12analyst exchanges

6executives

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Management on call

Diwakar Nigam

CHAIRMAN AND MANAGING

Varadarajan

WHOLE TIME DIRECTOR – NEWGEN SOFTWARE TECHNOLOGIES LIMITED

Virender Jeet

CEO – NEWGEN SOFTWARE TECHNOLOGIES LIMITED

Arun Kumar Gupta

CHIEF FINANCIAL

Deepti Mehra Chugh

HEAD, INVESTOR

Aniket Pande

LEAD TECHNOLOGY ANALYST - ICICI SECURITIES LIMITED

Key numbers — 40 extracted

22%

iven by robust demand especially across our traditional markets our revenue witnessed a growth of 22% Y-o-Y to reach INR 226 crores. We believe cloud and subscription revenue is a good indicator of o

INR 226 crore

nd especially across our traditional markets our revenue witnessed a growth of 22% Y-o-Y to reach INR 226 crores. We believe cloud and subscription revenue is a good indicator of our business momentum. The sub

30%

our business momentum. The subscription revenue had been growing steadily at the healthy pace of 30% Y-o-Y. They now comprise 35% of our total revenues. The annuity revenues for the quarter were I

35%

ubscription revenue had been growing steadily at the healthy pace of 30% Y-o-Y. They now comprise 35% of our total revenues. The annuity revenues for the quarter were INR 143 crores, witnessing a g

INR 143 crore

% Y-o-Y. They now comprise 35% of our total revenues. The annuity revenues for the quarter were INR 143 crores, witnessing a growth of 24% Y-o-Y. The annuity revenues comprised 63% of our total revenue in Q2

24%

total revenues. The annuity revenues for the quarter were INR 143 crores, witnessing a growth of 24% Y-o-Y. The annuity revenues comprised 63% of our total revenue in Q2. While the global environmen

63%

the quarter were INR 143 crores, witnessing a growth of 24% Y-o-Y. The annuity revenues comprised 63% of our total revenue in Q2. While the global environment is uncertain our traditi

27%

rters with exciting businesses from both existing and new customers. In Q2, Indian market grew by 27%. EMEA and APAC geographies have also been performing well for us growing at 24% and 39%, respecti

39%

t grew by 27%. EMEA and APAC geographies have also been performing well for us growing at 24% and 39%, respectively. Our US geography, however, has not been performing well. As we mentioned in the la

INR 49 crore

ion and services for the end-to-end digital lending platform. The total size, total order size is INR 49 crores spread over five years. We are also executing a midsized product for US based banks operating a

rs,

product. It provides cloud-native architecture and low- coal integration engine. Designed by bankers, and experts in trade finance and technology, the trade finance platform is a revolutionary concept

INR 30 crore

ets as well in the next few months. Profits and margins; our profit after tax for the quarter was INR 30 crores. On the cost front, there has been a continued impact of elevated employee costs given by the in

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Guidance — 20 items

Deepti Mehra Chugh

opening

“Nigam for the presentation of the results, which will be followed by a Q&A by Mr.”

Diwakar Nigam

opening

“We also received additional mining business from UAE's largest bank, a cloud base with a private sector bank in India and a midsized project for a leading Indian private sector bank.”

Diwakar Nigam

opening

“We will be hosting such events in other markets as well in the next few months.”

Diwakar Nigam

opening

“But we expect the number to stabilize in the future quarter.”

Aniket Pande

“Earlier you have mentioned a guidance of 20% Y-o-Y revenue growth for FY'23, which implies around 20% Y-o-Y growth in your second half of this year.”

Aniket Pande

“It seems like you can easily exceed this guidance based on your historical trend.”

Virender Jeet

“So these quarters will be larger than Q1 and Q2 per quarter.”

Virender Jeet

“Does it really affect our business growth this next quarter?”

Aniket Pande

“So how should we look at annuity base revenue going forward from here on?”

Akshat Agarwal

“This year -- this quarter the growth has finally been led by the India and the Middle East markets besides the group step-up in APAC, could you please help us understand what sort of growth can we expect from India and Middle East over a two to three year period?”

Risks & concerns — 13 flagged

While the global environment is uncertain our traditional market continues to remain strong.

— Diwakar Nigam

On the cost front, there has been a continued impact of elevated employee costs given by the industry-wide supply side challenges, which are now gradually abating.

— Diwakar Nigam

There has been pressure on costs on account of increased go-to-market initiative, returning to in-person events and gradually normalizing travel expenses.

— Diwakar Nigam

We are taking prudent steps to tap newer opportunity and combat uncertain environment as we continue our growth momentum.

— Diwakar Nigam

What percentage we'll hit, I think it's an outcome very, very difficult to comment on that.

— Virender Jeet

So that's supposing your strong growth in India, Middle East and APAC to US where on constant currency terms, perhaps your revenue growth would have been flattish to slight decline on a year-on-year basis.

— Akshat Agarwal

So we don't see the product or the product coverage being a challenge in doing that.

— Virender Jeet

But of course, the challenge is in terms of how fast can we establish ourselves in the mature markets, how fast can we exclude the GSI ecosystem selling our products.

— Virender Jeet

And that is where we can reach on that, but it's very difficult for me to put our number right now on that.

— Virender Jeet

So look at US based SaaS companies have been speaking about a slowdown in decision-making and having an impact on their top line.

— Sameer Dosani

Are you seeing, is there some impact of the recession or any slowdown, do you think?

— Sameer Dosani

But how much does it translate into business and what numbers do we hit is very difficult to predict?

— Virender Jeet

But in the short term, in FY '23, do you think that will be a risk FY '23 and FY '24?

— Sameer Dosani

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Q&A — 12 exchanges

Hi, thank you for the opportunity to host you and wishing all the members of Newgen Software a happy festive season ahead. I had couple of questions. Your revenue growth looks quite impressive at around 22% Y-o-Y in this quarter. Earlier you have mentioned a guidance of 20% Y-o-Y revenue growth for FY'23, which implies around 20% Y-o-Y growth in your second half of this year. It seems like you can easily exceed this guidance based on your historical trend. Any comment on that?

Virender Jeet

Thanks Aniket and good evening, and wishing you the Happy Diwali. And you're right, generally, our Q3 and Q4 are higher revenues, but so has been the case in the past year, revenues are higher. So it is a seasonality, so to do 20% growth in both quarters is on a much higher base than on a Q1, Q2 base. So these quarters will be larger than Q1 and Q2 per quarter. Thus, they will have a higher degree of margins. Right now, we are looking at accelerating growth and finding ways to accelerate that. What percentage we'll hit, I think it's an outcome very, very difficult to comment on that. And sir,

Thank you for the opportunity and I wish you very happy to Diwali to all of you from the Newgen Management Team. I have a few questions. Firstly congratulations, on a good set of numbers particularly, on the growth side. This year -- this quarter the growth has finally been led by the India and the Middle East markets besides the group step-up in APAC, could you please help us understand what sort of growth can we expect from India and Middle East over a two to three year period? I was under the impression that we have a very high market share in these markets. So structurally these markets ar

Virender Jeet

Good evening Akshat and wishing you Happy Diwali. You are right. This quarter, the growth has been, and in the last quarter the growth has been predominantly led by India, APAC and Middle East and they have grown at a substantial rate. If you look at next three years, though we have a strong penetration of our presence in India, it's not exactly true in Middle East and Asia Pacific. I think our penetration out there is quite thin yet, because a number of countries is very large and the kind of markets we operate is still very few on there. Having said that, there's one fundamental difference,

Congratulations on the good revenue. Largely I had a question on GSI side of the business. I mean I just wanted to understand what is the GSI traction now? What are the numbers of deals that we have won from GSI? And what is the traction here? Second question was on the currency impact. I mean we are having 22% Y-o-Y revenue growth. If you could quantify what is the currency impact, currency depreciation here? That will be very helpful, and my third question was on the local trade finance platform and the launch that we have done. So just wanted to understand the strategy behind this? What is

Virender Jeet

Thank you Mihir for asking. So on the GSI front, we are continuing to push that strategy and we are increasing our funnel. The funnel has improved from deals up to almost 90 deals now in the funnel we have. We are also spreading across going into other GSIs which have shown more interest beyond the traditional ones, where we had already done the leads. This quarter we have closed two deals with GSIs, one in Australia and one in US and we expect that momentum to keep on improving slowly. Of course, it's not at the same rate as we had expected to GSI, that's why we are trying to look at various

Sir, I just wanted to understand, number one, I was reading an article in PTI. So there it was mentioned that, we expect to double our revenue to $200 million by FY'24 on the back of this recently launched trade finance platform? So just wanted to understand your perspective on it?

Virender Jeet

See, we are in that range of 100 million and we have an ambition target of going, taking this company to the next step of 500 million over the next five, six years. There are multiple drivers for that, and the trade initiative is just one of the drivers on that. On its own, it will, I think it will play a significant part in pushing the growth up. But I think the exact date of doubling it by '24 is a press freedom. They take that, they take a freedom to the next level. But yes, but I think we are looking at accelerating growth beyond. No, if you can see we are doing a significant growth withou

All right. I just wanted to understand that in one of your slides, you mentioned that the subscription revenues at around INR 79 crore and then when you give the revenue breakup below that, you have mentioned that SaaS revenue is 10%, which comes to around INR 22 crores. So, just wanted to understand the difference between INR 22 crore on SaaS and INR 79 crore on subscription revenue?

Virender Jeet

Yes. So I think the SaaS is typically the revenues as we have changed the licensing from perpetual licenses to cloud-based or SaaS-based licenses. This is the licensing part of annuity- based license we are generating. That has reached around 10% of the business. On the other hand on the traditional license sale we are charging an annuity, which is called traditionally called the ATS. That is remaining part of our, around INR 55 crores for the quarter. So collectively between subscription revenue which is a combination of our SaaS subscription and traditional license subscription, which is cal

Just continuing on this revenue split. If you could please explain, it's in your presentation, revenue split by segment. So when we talk about annuity plus subscription revenues, what does that include? So when I look at revenue split by segment, it says implementation, 16%; support, 28%; ATS/AMC, 25%. Can you help us understand that chart?

Virender Jeet

Yes, so if you look at the revenue segment, there are 3. One is the sale of software, which is the license software sale, which is perpetual in nature... Which is SaaS? No. So SaaS is a license sale, which is sold as subscription, but traditionally since we are still older customers and existing customers who buy in the perpetual license mode, there is a onetime license sold and only the ATS get started, added to the annuity part of the business. So that's roughly around 15%, then you have this -- sorry, not 15%. Yes, so then the second part of which is called the SaaS revenue or SaaS license,

Congratulations on the good results. I wanted to know some details about the trade finance platform. So how are you pricing the trade finance platform? Is it based on a per-transaction charge or is it based on a per user per month basis? And secondly, what would be the average deal size for the trade finance platform?

Virender Jeet

Yes. So there are different. So first, to understand about trade finance, first of all, licensing model remains as same as the underlying platform licensing. The way we sell our low-code platform, the content management platform, which is based on some kind of usage, whether it's number of users, number of transactions, number of servers, it depends on that. Over and above that, depending on the complexity of trade, there are multiple levels of trade solutions. So the smallest trade deal on, can be like a few crores. It can be roughly around INR 3 crores, INR 4 crores, and the larger one could

I have just one question from you. I mean our business doesn't require rather than the promotional spend that you do, which you call investment every year. And hence, we are net cash flow-positive. So, and that cash pile is kind of increasing and it's affecting our ROCE negatively. So what plans do we have to utilize this cash? Are you looking at any inorganic opportunities and if not could there be a possibility for a buyback, because our valuations are very attractive? Any buybacks which you do would be very EPS- accretive? So if you can show some light on that.

Virender Jeet

Thanks, Jitendra. So you're right. So we have accumulated cash and I think we are very happy that as a product company, $100 million, we are generating cash and profits, which is a rare thing. Having said that, our core focus right now is all on growth and invest whatever we have for growth. So that means also exploring inorganic opportunities in markets which will suit us for really rapidly growing further. We are giving ourselves some time, maybe a year or so, to look at options and beyond that, in the meantime, we'll still be accumulating and generating more cash. And if we are not able to

Happy Diwali to you all. My question is regarding the growth you said that in five, six years, you will be a $0.5 billion company. So that suggests a very high growth rate. So the question is that, are you thinking of inorganic growth during this 5-year period or the products that you have will lead to such a wonderful growth outcome?

Virender Jeet

Thanks, Rajesh, for the question. So on the answer, let me clarify. So the aspiration of doing $500 million has not been translated directly into a target. Having said that, we are looking at all avenues as, inorganic is not off the table. We are looking at inorganic ways but right now, the kind of products that we have in terms of the low-code product and the content management product, there's enough market globally for that. The market itself is growing. And we have got excellent customer base. We're showing a lot of confidence in that product. So we don't see the product or the product cov

Sir, firstly, on the increase in our cost base that we have seen, it's been a sharp increase Q-on-Q as well. And in Q1 in the last quarter, you had mentioned that this year you're budgeting around 18% to 19% growth in the cost for the year. But if I look at this number and if I assume that you don't do the same kind of cost number for next 2 quarters as well, we are broadly going to increase our cost sales of more than 25%. So what's changing that outlook from 18%-19% to this very high number, if you can highlight that?

Virender Jeet

Yes. So I don't think we have an outlook of 18%-19% ever. We had a high -- we have already an outlook of around more than 20% of growth. So 22%-24% was already projected as possible. So there is no surprise on the cost front. The only surprise is probably on the manpower side, we had higher cost because the market kept on pressurizing. And even for the first H1 of this year, there were higher attrition, which would increase the cost base. There's an element of growth also, which will factor in that cost. So on the cost base, we don't have too many surprises. We see that over the next 2 quarter

Just I'm not sure whether you clarified or not. I joined in late. So look at US based SaaS companies have been speaking about a slowdown in decision-making and having an impact on their top line. So are you seeing similar trends in US and what is the overall outlook, if you can just throw some light? Are you seeing, is there some impact of the recession or any slowdown, do you think?

Virender Jeet

Yes. So Sameer, we answered this question a bit. I think probably you missed it. I think on the US side, there is a much bigger pain than what we can see in India, APAC and Middle East because of -- and a lot of customers are sharing that there is an uncertainty around corners. So as a result of that, we do see uncertainty in decision making. But how much does it translate into business and what numbers do we hit is very difficult to predict? We think that in next 2 quarters, we should still be able to push a bit of growth in US, but how fast is a different thing. And UAE and I mean middle Eas

Thank you so much, everyone for participating in the call. For the pending queries, would like to connect one-on-one if possible and for any other further questions, you can also go to our website. Thank you.

Management

Speaking time

Virender Jeet

Moderator

Harsh Shah

Utkarsh Katkoria

Sameer Dosani

Deepak Poddar

Ankush Agrawal

Akshat Agarwal

Saurabh Sadhwani

Aniket Pande

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Opening remarks

Deepti Mehra Chugh

Thank you, Inba. Good evening, everyone. I'm Deepti Mehra Chugh, Investor Relations, Newgen Software Technologies Limited, and I welcome you all to the Q2 FY '23 results of the company. I have with me from the management, Mr. Diwakar Nigam, Chairman and Managing Director; Mr. Varadarajan, Whole-Time Director; Mr. Virender Jeet, CEO and Mr. Arun Gupta, CFO. Before we move on to the discussion, let me highlight that this call may contain certain forward- looking statements concerning Newgen's future business prospects and profitability, which are subject to a number of risks and uncertainties and the actual results could materially vary from the forward-looking statements. Past performance may not be indicative of the future performance. The company does not undertake to make any announcement in case any of these forward-looking statements become materially incorrect in future or update any forward-looking statements made from time-to-time by or on behalf of the company. For further deta

Diwakar Nigam

Good afternoon everyone and thank you for joining us today on our Q2 Financial Results Call. In the second quarter driven by robust demand especially across our traditional markets our revenue witnessed a growth of 22% Y-o-Y to reach INR 226 crores. We believe cloud and subscription revenue is a good indicator of our business momentum. The subscription revenue had been growing steadily at the healthy pace of 30% Y-o-Y. They now comprise 35% of our total revenues. The annuity revenues for the quarter were INR 143 crores, witnessing a growth of 24% Y-o-Y. The annuity revenues comprised 63% of our total revenue in Q2. While the global environment is uncertain our traditional market continues to remain strong. We strongly believe that our products have significant leverage across both sides of the market opportunity revenue enhancement and cost optimization and efficiency and we can pitch accordingly. India witnessed a strong growth momentum during the last two quarters with exciting busin

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