Notes from CEO’s Interview Jan 2024
Will Sustain Margin At 22-23% In FY24 With 18-19% Profit Margin: Newgen Software | CNBC TV18
- Newgen Software reported strong Q3 performance with revenue and net profit growth YoY.
- US and APAC growth were slower.
- Revenue growth has been around 27-30% for the last five quarters.
- Q4 is usually the strongest quarter, but sustaining high growth rates is challenging.
- The business is looking strong with good order books and visibility into Q4.
- Q4 growth is expected to be around 25-30%, depending on deal conversions.
- Newgen is still a license-based software company, so revenue depends on making deals in the quarter.
US (00:01:40)
- US growth was up 12.6% YoY, lower than the company’s average.
- Traditional markets in India and the Middle East have been strong for growth.
- The overall slowdown in IT services is not affecting markets like India and the Middle East.
- US growth has been around 25% for the 9-month period.
- Revenue is still small, so a single quarter does not accurately reflect growth rates.
- Newgen is hoping to accelerate US growth momentum in the next few quarters.
- The business in the US is limited to banking and insurance, with traction from larger accounts.
- The US is a more mature geography for Newgen, and India product stories are still emerging.
- Newgen has around 70 accounts in the US but aims to explore growth in the next 3-4 quarters.
APAC (00:03:15)
- Revenue in APAC Q1 FY23 was close to ₹46 crores, but it has not reached that level since.
- In Q3 FY23, APAC revenue was around ₹42 crores.
- Newgen expects APAC to show strong annual growth of about 20% for the year.
- India and the Middle East are growing at 30% and 38% respectively, so even an 18-25% growth in APAC looks lesser in comparison.
- The company is seeing a lot of accounts looking to buy its software and expects to continue the growth momentum for the next two quarters.
Growth (00:05:00)
- Newgen’s growth is driven by logo acquisition and average deal sizes.
- The company has acquired around 38-39 logos in the first 9 months of the financial year.
- The larger push in growth has come from large banking deals in India, the Middle East, and some in APAC.
- Newgen expects the deal sizes to further grow over the next year in both strong and emerging markets.
Margins (00:06:20)
- Newgen’s margins have improved from 17-18% a year ago to 21% currently.
- In Q3, margins were close to 24%.
- The company aims to maintain margins of around 22-23% and net margins of around 18-19%.
- Margins are not expected to be a challenge this year.
- Annuity revenue is expected to grow as the company grows.
- Once the company size reaches around $300-400 million, the annuity part of the business is expected to be around 70% of the overall revenue.
- Currently, the company is nearing around $150 million in annuity revenue.
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