Newgen Software Technologies Limited Q3 FY23 Earnings Conference Call Insights

Key highlights from Newgen Software Technologies Limited (NEWGEN) Q3 FY23 Earnings Concall

Management Update:

• [00:03:37] NEWGEN said it is seeing increased adoption of subscription based business model, with the company’s overall subscription revenue growing 37% YoY.

• [00:09:44] The company said that FY23 is marked by the continuing impact of elevated employee cost. NEWGEN added that it’s widening the employee pyramid by higher intake of freshers expecting large scale development needs in the future.

Q&A Highlights:

• [00:12:25] Mihir Manohar from Carnelian Asset asked about the traction on the trade finance platform. Virender Jeet CEO said the trade finance funnel has developed across all regions, especially in Middle East, India, APAC and also in US. Broadly the deals are substantial in size vs. traditional size.

• [00:12:44] Mihir Manohar of Carnelian Asset asked about GSI performance in 3Q23. Virender Jeet CEO replied that NEWGEN is continuing to invest in GSI and the funnel is keeping on improving. In 3Q23, NEWGEN closed 3 deals with GSI.

• [00:17:44] Harsh Shah with Dimensional Securities asked about the driver of sharp increase in revenues in the Indian markets. Virender Jeet CEO replied that India market has been surprising the company, though in some quarters steep jump can be due to some license deals coming in. NEWGEN believes the year is going to be very strong for India.

• [00:20:08] S. Chatterjee from AS Capital enquired about the growth challenges going forward. Virender Jeet CEO said NEWGEN is very confident with the products and the solution. This year, NEWGEN has seen the business momentum and if it continues for 6-7 quarters, the company can decide on a timeline to becoming a $500 million company.

• [00:25:55] Ankur from Jefferies asked about the outlook on company’s markets, especially US. Virender Jeet CEO replied that emerging markets are continuing to perform strongly. This growth is driven by India and Middle East. APAC is becoming strong with Australia subsidiary kicking in. In US NEWGEN is pivoting on strategy, walking out of businesses not leading to long term growth and margins.

• [00:28:25] Ankur from Jefferies queried about drivers of other expenses rising quite sharply in 3Q23. Virender Jeet CEO said other expenses will have significant growth vs. last year due to normalization of travel, operating cost and more marketing activities. Other expense might go up sequentially in future as NEWGEN starts to invest more in travel and marketing.

• [00:30:40] Devang with IDBI Capital asked about the constant currency growth in 3Q23. Virender Jeet CEO answered that constant currency growth was around 19.5% in 3Q.

• [00:31:01] Devang with IDBI Capital also enquired if NEWGEN will be able to surpass 3Q23 performance in 4Q23. Virender Jeet CEO answered that historically Q4 has been stronger than 3Q. The company expects the base of its business to keep improving and the attempt is to have a stronger 4Q compared to 3Q.

• [00:32:30] Devang with IDBI Capital also asked if the company will maintain the FY23 revenue growth in FY24. Virender Jeet CEO answered that the endeavor is to exceed that. The aspiration is to invest aggressively for growth.

• [00:34:37] Devang with IDBI Capital asked about the contribution of GSI to revenue and if US margins are sustainable going forward. Virender Jeet CEO replied that GSI contribution is very small. On US, quarterly margin is not the right metric to look at. Annual margins will look better for US. For next year, NEWGEN does not expect US to be weak, but it should be a growth driver.

• [00:39:57] V.P. Rajesh of Banyan Capital enquired why the company is winning in the Indian market. Virender Jeet CEO replied that in India NEWGEN has been traditionally strong in banks and insurance companies. Digital lending and service request management are some of the drivers of India growth.

• [00:45:53] V.P. Rajesh of Banyan Capital asked about the retention of subscribers in the SaaS business. Virender Jeet CEO answered that NWEGEN has almost about 98-99% retention with annuity of over INR50 lakhs.

• [00:53:06] Sarang Sanil with RW Investment asked about the company’s exposure to UAE in general. Virender Jeet CEO said NEWGEN is in tax free zone in UAE as most of the billing is a branch office. NEWGE is looking at localizing in both UAE and Saudi in future.