Newgen Software Technologies Limited Q4 FY22 Earnings Conference Call Insights

Key highlights from Newgen Software Technologies Limited (NEWGEN) Q4 FY22 Earnings Concall

Management Update:

• NEWGEN said that of the 530-odd customers, 38 customers witnessed billing of over INR5 crores in FY22 compared to 26 customers in FY21.

Q&A Highlights:

• Sarang Sanil from RW Investment asked about the GSI percentage of revenue on the GSI side. Diwakar Nigam MD said it was not GSI as it was a recent initiative. The percentage of revenue from partners was about 17-18% previous year. This year, it’s roughly around 23%, which has shown growth.

• Sarang Sanil from RW Investment also asked how is the GSI environment looking like in the coming year. Diwakar Nigam MD said the GSI cycles of closure are much longer now, so the revenue accumulation will happen in coming quarters and years. It’s growing, but NEWGEN is far from 50% but it’s moving in the positive direction.

• Sarang Sanil from RW Investment asked about the deal wins in GSI for FY22. Diwakar Nigam MD replied that the GIS wins in FY22 has spread across territories. Last year, it was localized more towards US. This year some deals were in Australia, APAC, Europe and US. So it was better than last year.

• Sarang Sanil from RW Investment asked about employee cost climbing to 53% from 49% last year as a percentage of revenue. Diwakar Nigam MD clarified that the way demand is accelerating there is pressure on the cost on the employee front. NEWGEN expects the employee cost to go up further in FY23 by few more percentages.

• Mihir Manohar from Carnelian Asset Management asked about the size of GSI cases and the size of enquiries. Diwakar Nigam MD answered that unless those cases come to very close in the later stage of the funnel, NEWGEN don’t determine the exact size. The expectation is to have a potential to build from $500,000 of annuity to a kind of $1 million annuity over a period of time.

• Sanjay Awatramani of Envision Capital asked about the guidance on FY23 revenue and EBITDA margins. Diwakar Nigam MD clarified that NEWGEN doesn’t provide any guidance as it’s still a small business. The company is expecting to keep its net margins above 18% and EBITDA margins above 23%.

• Sanjay Awatramani of Envision Capital also asked about the attrition level faced for FY22 and 4Q22. Diwakar Nigam MD replied that for FY22 attrition level was to the extent never seen in its history, touching close to 40%. NEWGEN expects that in 3Q, 4Q of FY23 it should normalize.

• Ankush Agarwal from Surge Capital enquired about the medium term outlook of EBITDA margin and net margin. Diwakar Nigam MD said that with NEWGEN’s growth targets meeting, it should be between 18-19% of PAT margins and around 23% of EBITDA margins for the near term.

• Dipen Sheth from Buoyant Capital asked about the reason for significant rise in intangible asset in FY22 to INR16 crore. Diwakar Nigam MD answered that it represents the Number Theory acquisition. And Arun Gupta CFO added that as per the valuation by the independent valuer, product valuation is intangible as well as goodwill of around INR2.5 crores and INR16 crores is product valuation.

• Dipen Sheth from Buoyant Capital also asked if NEWGEN will be taking write-offs against this acquisition over a period of time. Diwakar Nigam MD replied that it will be amortized in the next five years.

• Saurabh Sadhwani of Sahasrar Capital enquired about the contributors for rise in other expenses. Diwakar Nigam MD replied that it has increased due to some amount of investments in sales and marketing towards the later part of last year. And also some amount of office expenses and travel expense going up slightly.