Release Date: April 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Newgen Software Technologies Ltd (BOM:540900, Financial) reported a strong revenue growth of 28% YoY, reaching INR1,244 crores.
- The company witnessed robust profitability with a 42% YoY growth in profit after tax, amounting to INR252 crores.
- Significant growth in key markets: EMEA and India saw growth rates of 39% and 33% respectively.
- The company secured its largest-ever project in the APAC region, valued at INR97 crores.
- Newgen Software Technologies Ltd (BOM:540900) launched several new AI-enabled products and platforms, including the NewgenONE platform called Marvin and the next-generation low-code Trade Finance Solution.
Negative Points
- The US market strategy is still a work in progress, with slower growth and ongoing adjustments needed.
- The company faces challenges in the mature markets, particularly in the US and Europe, which are not showing significant growth.
- Despite strong performance, the company’s net trade receivables are high, resulting in a net DSO of 130 days.
- The tax rates for the next financial year are expected to be higher, which could impact net margins.
- The company’s BPO segment remains small and has not shown significant traction or growth.
Q & A Highlights
Q: Is your order book and pipeline growing faster than your revenue booking pace? Where do you think we are in the cycle of banks and financial institutions' digital journeys?
A: Our order book has expanded to INR1,560 crores from INR1,300 crores, showing healthy growth. We see good traction in India, the Middle East, and expect a strong recovery in APAC. The US market is slower, but we are working on larger entities and reshaping our strategy. Overall, we expect to maintain our growth momentum.
Q: How should we imagine the products and initiatives that will help us reach the $500 million target by FY27?
A: Our growth is based on core verticals, with a new focus on insurance. We are investing in mature markets and expanding our footprint. The business composition remains similar, but with more emphasis on insurance and mature market expansion.
Q: How should we read your margin profile in the year ahead given the pace of growth?
A: We aim to maintain a healthy 20-21% net margin. If growth exceeds our targets, margin expansion will occur. However, tax rates will be higher next year, impacting net margins. We expect to maintain margins similar to this year.
Q: What is the growth in the order book for insurance?
A: We are building our insurance segment, focusing on life, general, and health insurance. While banking has been the primary growth driver, we expect insurance to become a substantial part of our revenue in the next two to three years.
Q: Any comments on the M&A strategy and GSI-led strategy?
A: We are looking at tactical acquisitions for market access, especially in mature markets. On the GSI-led strategy, while we have product tie-ups, the funnel growth has been slower than expected. We are working with consulting companies to build early-stage funnels.
Q: How is the US market performing in terms of growth?
A: Even in a weak year, the US market has shown growth of 17-22%. For long-term aspirations, mature markets need to grow faster. We expect organic growth of 20% or more across all markets.
Q: What is the pricing environment like?
A: Globally, prices have peaked, and costs have increased. We are evaluating and revising our pricing components. More clarity on pricing strategies will be available in the next few quarters.
Q: How is Marvin being accepted, and what is the revenue from it?
A: Marvin, our generative AI capability, enhances our existing products. It does not have a separate monetization stream but creates more use cases. We are seeing interest in AI-led use cases, but it is too early to quantify revenue.
Q: What is the growth in trade finance revenue?
A: Trade finance revenue crossed INR100 crores with six to seven deals. We are focusing on larger deals in India and the Middle East, with potential expansion to other regions in the future.
Q: How are you resetting your sales strategy in the US?
A: We are pivoting from smaller banks to larger banks with assets above $50 billion. This requires GSI support and a different sales approach. We have built a new sales team and are working on product definitions suited for larger banks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
