Conference Call – Q4 FY’24 Summary
Revenue and Growth
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Newgen Software Technologies Limited reported a 28% year-over-year growth in revenue to INR 1,244 crores for Q4 FY’24.
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The company witnessed strong growth in EMEA (39%) and India (33%) markets, driven by end-to-end automation solutions for customers.
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Newgen booked its largest ever project of INR 97 crores with a technology organization in Singapore in the APAC region.
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The company saw an increase in the number of customers with billing of INR 5 crores from 51 last year to 65 in the current year, with an average revenue per customer growth of 29%.
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Newgen added 51 new logos in the year, including 11 in Q4.
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Newgen Software Technologies Limited reported an annuity revenue of INR750 crores, accounting for 60% of its total revenue.
Financial Performance
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Newgen Software Technologies Limited achieved a 42% year-over-year growth in profit after tax, amounting to INR252 crores.
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The company invested 9% of its revenues on R&D initiatives and 22% on sales and marketing activities.
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The company’s net cash generated from operating activities stood at INR281 crores, with a net trade receivable of INR444 crores and a net DSO of 130 days.
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Newgen Software Technologies Limited declared a dividend of INR4 per share post bonus issue of 1:11, which is INR8 on pre bonus shares.
Business Strategy and Outlook
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The company’s order book grew from INR1,300 crores to INR1,560 crores, indicating a healthy growth in business.
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The company is optimistic about maintaining its growth momentum in the coming year, with a strong pipeline in traditional markets and ongoing efforts to penetrate the U.S. market.
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Newgen Software Technologies Limited aims to achieve a revenue target of $500 million by the end of FY 2027, with a focus on expanding into the insurance sector and driving organic growth in the government segment.
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The company is experiencing strong growth in markets where IT companies are struggling, and its solutions are resonating well in these markets.
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The business composition is not expected to change much, but there will be a focus on expanding into the insurance sector and accelerating growth in mature markets.
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The company aims to maintain a healthy net margin of around 20%-21%, but the tax rate is expected to increase next year, impacting the net margin.
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The company does not expect to revert to the previous seasonal pattern of a step-down in Q1, and aims to maintain a higher growth rate in Q1 compared to the average growth rate.
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The growth in order bookings has normalized compared to last year’s exceptional growth, but the company does not intend to fall back to a 20% growth target and aims to maintain a higher level of growth.
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New logo acquisition and average deal size per logo are key factors contributing to the company’s growth.
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The company is strategically focusing on expanding its presence in the insurance sector and is investing in building capabilities and products to target larger deal sizes in life, general, and health insurance.
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The company is considering tactical acquisitions for speed to market and access to major markets, but no specific targets have been identified yet.
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The company expects to make acquisitions in mature markets within the next 1-2 years to accelerate growth.
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The GSI-led strategy is facing challenges in terms of speed and growth, particularly in mature markets.
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The company is exploring alliances with consulting companies beyond system integrators to expand its reach in the U.S. market.
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Organic revenue growth is expected to be 20% or more, with all markets having the potential to achieve this growth rate.
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The U.S. market is expected to continue growing at a slower rate compared to the company’s consolidated business, but it is crucial for achieving the company’s long-term growth goals.
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The company is evaluating pricing components of its products and services due to global price changes and increased costs.
Key Initiatives and Developments
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The company launched several new versions of its platforms, including the AI-enabled version of Newgen One platform called Marvin, a newer version ECM and CCM platform, and IDP Studio, a next-generation low code trade finance solution.
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The company is developing vertical solutions built on low code, including digital lending, trade finance, and supply chain, and is targeting similar solutions in the insurance sector.
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A large part of the company’s business is driven by solution stacks beyond horizontal products, with customers purchasing accelerators to build more products.
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The company is exploring the use of Generative AI (GenAI) across all verticals, not just BPO.
Challenges and Opportunities
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The company’s business is seasonal, with Q1 and Q2 having lower revenue compared to Q3 and Q4.
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Deal closures are now more spread out throughout the year, resulting in higher quarterly growth rates due to lower base numbers in Q1 and Q2.
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The BPO segment is a potential market for horizontal play, but it has not shown significant traction in India or outside.
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The company aims to reach an average DSO of 120-125 days and a Q4 DSO of 115 days.
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Mature markets are expected to grow at a much higher rate, potentially reaching 30%-50% growth in some years.
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The company’s M&A strategy is focused on gaining access to markets to speed up the sales process in those countries.
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Newgen Software does not provide guidance for the next financial year but intends to maintain its historical growth momentum.
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The company is resetting its sales strategy in the U.S. by focusing on banks with asset bases of $2 billion to $20 billion, which represents a large number of potential customers.
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