NEWGENNSEJanuary 17, 2023

Newgen Software Technologies Limited

9,239words
53turns
8analyst exchanges
5executives
Management on call
Diwakar Nigam
CHAIRMAN AND MANAGING
Varadarajan
WHOLE-TIME DIRECTOR – NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Virender Jeet
CHIEF EXECUTIVE OFFICER – NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Arun Kumar Gupta
CHIEF FINANCE OFFICER
Deepti Mehra Chugh
INVESTOR RELATIONS – NEWGEN SOFTWARE TECHNOLOGIES LIMITED
Key numbers — 40 extracted
INR 250 crore
progress and performance in the third quarter. This is our first quarter with revenue exceeding INR 250 crores at Newgen. We witnessed a strong revenue growth of 26% year-on-year. All our geography witnessed
26%
t quarter with revenue exceeding INR 250 crores at Newgen. We witnessed a strong revenue growth of 26% year-on-year. All our geography witnessed growth for us. Our traditional markets continued to be t
40%
traditional markets continued to be the drivers of our growth. India, EMEA witnessed a growth of 40% and 27%, with good business from both existing and new customers. APAC and US region witnessed a g
27%
ional markets continued to be the drivers of our growth. India, EMEA witnessed a growth of 40% and 27%, with good business from both existing and new customers. APAC and US region witnessed a growth of
18%
with good business from both existing and new customers. APAC and US region witnessed a growth of 18% and 13%. We are seeing continued adoption of subscription- based business model. The overall subs
13%
od business from both existing and new customers. APAC and US region witnessed a growth of 18% and 13%. We are seeing continued adoption of subscription- based business model. The overall subscription
37%
usiness model. The overall subscription revenues have been growing, steadily at a healthy pace of 37% Y-o-Y and were at INR 84 crores in Q3. These are the building blocks of our long-term sustainable
INR 84 crore
erall subscription revenues have been growing, steadily at a healthy pace of 37% Y-o-Y and were at INR 84 crores in Q3. These are the building blocks of our long-term sustainable revenues. The annuity revenues
INR 154 crore
e building blocks of our long-term sustainable revenues. The annuity revenues for the quarter were INR 154 crores, witnessing a growth of 38% Y-o-Y. The annuity revenue comprised 61% of our total revenue in Q3.
38%
inable revenues. The annuity revenues for the quarter were INR 154 crores, witnessing a growth of 38% Y-o-Y. The annuity revenue comprised 61% of our total revenue in Q3. It is noteworthy that these
61%
r the quarter were INR 154 crores, witnessing a growth of 38% Y-o-Y. The annuity revenue comprised 61% of our total revenue in Q3. It is noteworthy that these growth numbers incorporate the continuing
rs,
years. The response received was tremendous, participation included existing and new global customers, system integrators and large consulting firms. It served as a good platform for showcasing our pro
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Guidance — 20 items
Diwakar Nigam
opening
“Nigam for the presentation of the results, which will be followed by a Q&A.”
Diwakar Nigam
opening
“We had significant deals in existing as well as new accounts during the quarter, including a cloud deal with a full-service financial institution in the Southeast region in America; a license-based project for a financial institution in America providing offerings for life and health insurance; annuities, pensions, real estate, banking and investment wins.”
Diwakar Nigam
opening
“In India, Newgen won a large-sized project from a leading public sector bank and a private sector bank, a midsized project in Singapore for a global financial services group, a project for one of the fastest-growing banks in India currently.”
Virender Jeet
qa
“So as you know, we as investors, how should we see margin for the balance part of the year or even for the next year earnings?”
Virender Jeet
qa
“But even in near term in Q4 as well as next year, I think we aim to achieve a margin percentage of net margin between 17% to 18% and EBITDA between 22% to 23%.”
Virender Jeet
qa
“I mean, what is the type of problem they will be facing if they switch their vendor?”
Virender Jeet
qa
“So what are the challenges in it and what will be the growth drivers, I mean, whether that's GSI, corporate finance platform or anything else?”
Virender Jeet
qa
“And with Australia subsidiary also kicking in from next year -- we should be able to build a much more stronger impact.”
Virender Jeet
qa
“But do you expect it to go further -- higher incrementally or sequentially for the next quarter and also for the next year?”
Virender Jeet
qa
“Other expenses will go sequentially up slightly because -- for next quarter, they will not go substantially up.”
Risks & concerns — 10 flagged
On the cost front, this year is marked by the continuing impact of elevated employee costs, higher costs on account of increased go-to market initiatives, return in-person events and gradually normalizing travel expenses.
— Diwakar Nigam
Nigam said, I think there's a lot more of cost pressure on -- in terms of talent management, wages, and that seems to be one of the most important challenges still we are facing in terms of managing the talent.
— Virender Jeet
So we have recorded a growth of 13%, but it's very weak compared to what we have been able to traditionally do from US.
— Virender Jeet
We are having some amount of challenge because we're at 14%, but -- although historically Q4 is always a larger quarter for us and more – because the costs almost are recurrent.
— Virender Jeet
I think annual margin is what -- I think we should be able to do better in US because our US Q1 and Q2 were weak.
— Virender Jeet
But next year, we don't expect US to be weak at all.
— Virender Jeet
See, I don't see there's a challenge on the technology stack.
— Virender Jeet
Our ability to sell, market and position ourselves is the biggest challenge.
— Virender Jeet
So I think there is a challenge in terms of smaller entities always disrupting the market.
— Virender Jeet
So first of all, generally, in Europe, we have seen there is a slowdown.
— Virender Jeet
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Q&A — 8 exchanges
Q
Congratulations for a good set of numbers. Sir, I just wanted to understand your traction on the trade finance platform, I mean, given the fact you launched this platform in September. So how is the traction over there? And what kind of inquiries or what kind of conversations are you having over there?
Virender Jeet
And my second question was on the GSI. How did GSI pan out this particular quarter? And my third question was on the margins. I mean we have seen sequential improvement in margins, but the fact that since travel cost has normalized or still on a Y-o-Y basis it is down 500 basis points. So as you know, we as investors, how should we see margin for the balance part of the year or even for the next year earnings? Yes, those were all my questions. And I'll try to answer them one by one. See, on the trade finance, what we launched a few quarters back, I think we have developed a very promising funn
Q
My question is on the Indian market. So this quarter has seen a sort of sharp increase in the revenues. We were around INR 65 crores sort of run rate. And this quarter, we saw around INR 86 crores, INR 87 crores. So just wanted to know is there any one-off in this quarter or is this the run rate going ahead for Indian markets? Harsh Shah, this Indian market keeps on surprising us. Every time we say that it's going to slow down, it keeps on bouncing, and every two, three years, it delivers very strong performance. I think last year and this year, we are in that cycle that India market is delive
Virender Jeet
revenue but yes, some amount of fluctuation in quarters can happen because of large license deals. But on a year -- I think for us to look at regional -- I keep on saying that it's very important to look at an annual result for a regional performance rather than a quarterly because the numbers are still small-- when the numbers are in the range of INR 30 crores, INR 40 crores, INR 50 crores, a single deal can change all percentage gains. But if you look at a nine month result, India has been very strong, which concludes that this year is going to be very strong for India. Okay. Just if I may f
Q
Yes, I'm sorry for the last time. So could you provide some color on your various markets that you have and the outlook for each of these markets? Especially US, I see that there has been a 13% growth this year. So what has been the growth in terms of constant currency? And there's been a doubling in terms of your SaaS revenue. So what has led to that? So my first question is this. Yes. On the various markets, I think you can see through the results clearly what's happening in the emerging markets, which have been strong for us, continue to be performing very strongly. India is driving that gr
Ankur
So the cost would be flat and you are planning to -- and the revenue would be, hopefully, competitively higher. That's what you're saying? Yes, and that has been the tradition. If you look at last five year's data, this is exactly -- most of the margin actually comes in Q3 and Q4, and predominantly in Q4.
Q
Congratulations on a good set of numbers. So I have a couple of questions. One is, what is your CC growth in the quarter? Second, will you be able to surpass the Q3 performance in Q4 and FY '24? What led to the dip in government revenues? I have two more questions, but I'll come after your answers. Okay. Then let me see on the constant currency, our Q3, we're at around 19.5%, if I'm right. So around 19.5%. That is – on the Q3 versus Q4, historically, Q4 has been always stronger than Q3. But Q3 since we have delivered at 26%, we do expect the base for our business keeps on improving because of
Devang Bhatt
And on the FY '24 side, will you be able to maintain the FY '23 revenue growth? See, our endeavor is to even exceed that, because as we said, we have aspiration of investing aggressively for growth. And depending on if the market is favorable and we are able to execute our plan, there is no reason why we can exceed the growth of this year. And how much was travel as a percentage of revenue this quarter or nine-month basis, whichever is? And with increase in direct sales, how much the cost will increase? Despite that, you will be able to maintain that 22% to 23% band? So I think this year, you
Q
Sir, first, I just wanted to understand, I mean, the comment that you made in the -- to the last participant, that for -- I mean a 25% revenue growth, our cost will grow only at 13%, 14%, right? It will not grow proportionately?
Virender Jeet
Yes. So ideally, but then if it stands today, if we take this quarter as a base, already our PAT margin is 19%. So ideally, then our PAT margin if we have to look at maybe three years down the line, it should cross 22% to 25% in that range ideally if our revenue grows at 25%, whereas our cost grew at only 13%, 14%? Yes, Deepak. You're absolutely right, the business keeps on expanding margins at gross level as we expand and scale but then what happens is, though direct cost would grow at the same level, but we keep on growing our cost in sales and marketing and R&D, because as, if you want to c
Q
The first question is just, you called out about the Indian business being very strong on the growth side. So if you can just elaborate a little bit more as to why we are winning in the Indian market? Is it because the banks, etcetera, are becoming more automated, or are we replacing somebody else? Some color on that will be helpful? Yes. So one thing is clearly, so India we have been traditionally very strong in all the banks, insurance companies and most of the shared services. So almost all enterprises end up using us in one way or the other. So what happened basically over the last few yea
V.P. Rajesh
So just if I can summarize. It's not necessarily replacement of other vendors. It's more about either the processes being automated or new things or new way of doing business that is coming up which is flowing to you, is that a way to understand this? Exactly. Yes. And then second question is, as one of the participants here was talking about that the funding has come down for the start- ups. So globally, are you seeing your competitive landscape changing, where some of these start-ups who were coming into your space either have become less aggressive in the marketplace or have gone away? So I
Q
Congrats on a good set of numbers, sir. I have a few board questions. Last five years, what strategically we changed in our business model, like coming into -- since we listed in market to streamline the processes which earlier were not there? In conjunction to the ballpark vision of reaching $500 million turnover we have in mind. So can you just throw some strategic highlights on that?
Virender Jeet
Yes. So Chirag, last five years or more continuously what has happened, but I can tell you specifically what we have done slightly in last three years, and that is the time line when we started working on the GSI. And the idea was not working on GSI. The idea was to find a way to enter Fortune 2000 market, and that could not be directly only sales-led. I think we have invested a lot on creating the GSI enabling ecosystem, which is typically a GSI sales team out of India which is working with relationships, competence center, practices sets of software. And we have augmented those sales teams o
Q
Sir, just a couple of questions. One was, sir, can you share, what are your gross margins in nine months FY '23?
Virender Jeet
Yes. I think it should be around 65%. Is it possible to probably share that, I mean, in the presentation as well? I mean, you shared the employee costs, and that would also include R&D and also I think some bit of sales and marketing. So if it's possible to separate that out and just to because as you explained earlier, probably as more subscription business becomes greater, then probably gross margin, it's easier to track that gross margin evolution for us from the outside. So if you can share? Sure. I think we can, okay, I'll ask Deepti to look at that and see that we can present it. Yes, I
Speaking time
Virender Jeet
27
Moderator
9
Deepak Poddar
5
Mihir Manohar
3
Devang Bhatt
2
Rohit Balakrishnan
2
Diwakar Nigam
1
Ankur
1
V.P. Rajesh
1
Chirag Kachhadiya
1
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Opening remarks
Diwakar Nigam
Ladies and gentlemen, good day, and welcome to Q3 FY '23 conference call of Newgen Software Technologies Limited. As a reminder all participants line will be in the listen-only mode and there will be an opportunity for to you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Deepti Mehra Chugh. Thank you, and over to you, ma'am. Thank you. Good evening, everyone. I'm Deepti Mehra Chugh, Investor Relations Newgen Software Technologies Limited, and I welcome you all to the Q3 FY '23 results of the company. Wishing you all a very happy New Year. Joining with me today on our call is our management, Mr. Diwakar Nigam, Chairman and Managing Director, Newgen; Mr. Varadarajan, Whole-Time Director; Mr. Virender Jeet; Chief Executive Officer and Mr. Arun Kumar Gupta, Chief Fi
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