Newgen Software Technologies Ltd Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Baidik Sarkar - Unifi Capital - Analyst : Virender bhai, good evening and congrats on a very strong show. How should we interpret this phase of your momentum, right? Is this an outcome of our regular go-to-market investments that just happened to fructify at this point in time today, clustered together in a small time frame? Or is the momentum that you are witnessing from the demand side of a genre that you have not seen earlier to that extent that you super-cycled, that REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2023 / 10:30AM, NEWG.NS - Q2 2024 Newgen Software Technologies Ltd Earnings Call is fresh and to that extent unique? I am just trying to understand how we should interpret this momentum that probably you may not have witnessed before.

Question: Baidik Sarkar - Unifi Capital - Analyst : How long do you think the cycle will be, right? And does the numbers of H1 change the historical 40-60 split that we have seen annually? Normally, we see a flush of spends in Q3 and Q4. Is that direction still on or is the cyclicality curve smoothening?

Question: Baidik Sarkar - Unifi Capital - Analyst : Last question, given that typically your sales cycle in this industry is of 9 to 12 months, it is not higher. And we are already past this fiscal, right? You mentioned in your opening remarks that your position in the core verticals are widening. So, does that indicate to you that in fiscal 2025, the demand saliency or execution saliency will probably be better than what we see in 2024?

Question: Baidik Sarkar - Unifi Capital - Analyst : Sure, sure. In Q1, I think you quantified the pace of your order book growth was about 30% even though revenue was what it was. Is it still in that genre? I am just trying to see the pace at which your order book is growing.

Question: Baidik Sarkar - Unifi Capital - Analyst : Thanks, Virender. My best wishes and I will be in touch.

Question: Aditi Patil - ICICI Securities - Analyst : Thank you for the opportunity and congratulations on good set of numbers. My first question is on implementation revenue which has grown strongly both on YoY and QoQ basis. Is it that the strong license revenue in last quarter has led to more implementation work in this quarter? What is the sustainability of this growth? Secondly, on margins, has strong implementation revenue translated to lower employee expenses as a percentage of revenue and thus led to strong EBITDA margin improvement on a YoY basis? And my third question is on revenue guidance. So, after strong performance in H1 with 30%-plus growth, it seems like for the full year we can grow around that 30% range. So, would you like to increase your guidance from current 20 to 25% to 30% growth for FY24? And my fourth question is around the pricing structure on the deal, the 68 crore [FIRE] deal which you have announced. So, is it license-based deal where like license and implementation revenue will get recognized in the few initial years, maybe two years and then you will have support and services revenue for rest of the year? Yeah, these are my questions.

Question: Aditi Patil - ICICI Securities - Analyst : Yes. I just had one last question. Thank you for answering the first part. So, my last question is on can you provide some details regarding like how the partnership with Coforge is progressing and like how many new logos or deals you have won so far through this partnership?

Question: Baidik Sarkar - Unifi Capital - Analyst : Okay, got it. Thank you.

Question: Vikrant Gupta - ICICI Prudential Life - Analyst : Hi, congrats on a good set of numbers. So, I had two questions. Firstly, can you talk about whether anything incrementally has happened in the US geography between Q2 and Q1? You had talked about the Q1 numbers in the US being strong on a low base as well as some perpetual licenses being sold that you did not really think was sustainable. So, has anything changed in Q2 versus Q1? The growth number is still pretty strong. So, that's one. And second, can you provide some context on how one should interpret the bookings number? Is this something that executes over the next one year, two years, or how should one read that number? Yeah, two questions. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2023 / 10:30AM, NEWG.NS - Q2 2024 Newgen Software Technologies Ltd Earnings Call

Question: Vikrant Gupta - ICICI Prudential Life - Analyst : Got it. Thank you. Great. All the best.

Question: Arvind Chetty - Tata AMC - Analyst : Yeah. Hi. Thanks for taking my question. Sorry to harp on the growth for second half. So, what I understand is our order book growth is growing faster than our revenue growth. And most of this order book we anticipate to get converted into revenues in next 12 months. So, is it fair to assume that our growth in H2 on a YoY basis would accelerate from where we are today?

Question: Arvind Chetty - Tata AMC - Analyst : Sure. So, just to follow up on that, for the last couple of quarters, we have seen license revenues also going significantly better for us. So, if that trend sort of continues in Q3 and Q4, our growth should look much better or maybe similar to what it is at least in H1, right?

Question: Arvind Chetty - Tata AMC - Analyst : Got it. Thanks a lot. And just one last question on margins. So, we've been in that 17% to 18% PAT margin for most of the years, starting in the last few years. This year, at least in first half, we are trending much better on a YoY basis. And if I heard it right, most of the investments we've done in H1, so the margin benefits should accrue in H2. So, to that extent, on a YoY basis for full year, the margin should look better. And can we go higher than 20% PAT margin for the business on a sustainable basis?

Question: Arvind Chetty - Tata AMC - Analyst : Great. Thanks a lot. That answers my question.

Question: Mihir Manohar - Carnelian Asset Advisors - Analyst : Yeah. Hi. Thanks for giving the opportunity and congratulations on great set of numbers. I mean, these are very good numbers typically in this environment. So, I really wanted to understand which parts of BFSI are driving the growth. Because when we see global scenario, I mean, BFSI specifically and the IT spends are challenging. So, I just wanted to understand what is exactly driving this growth in BFSI. Are these big market banks? Are these small market banks? How to understand them? And what can be the sustainability of this growth? That will be important. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2023 / 10:30AM, NEWG.NS - Q2 2024 Newgen Software Technologies Ltd Earnings Call My second question would be the traction on the trade finance side. I mean, last time you had mentioned, there are some five to six clients which you have already on the trade finance part of the piece. And you were looking at some four to five clients this year also. So, what is the update over there? What number of clients or what kind of inquiries are you seeing on the trade finance side? And is it higher or lesser than what you were previously seeing? That is my second question. And third question was on the BPO/IT part of the piece. When I say BPO/IT, I mean, it has come down over the last two quarters. So, is it a conscious effort that we are not -- we don't want to grow this particular part of the business, BPO/IT? And if so, then what is the process over there? I just wanted to get an understanding around that. Yeah. So, those were the questions.

Question: Mihir Manohar - Carnelian Asset Advisors - Analyst : Sure. That's really helpful. Just a follow-up on the deal sizes. You have mentioned that deal sizes are going up for us. So, if you can just throw some color as to how the deal sizes moved in the last 12 months or last 18 months per se. That will be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2023 / 10:30AM, NEWG.NS - Q2 2024 Newgen Software Technologies Ltd Earnings Call And just a second follow-up on the banking side. What are the kind of people or companies that we are competing with while getting these contracts? Just to follow through there.

Question: Mihir Manohar - Carnelian Asset Advisors - Analyst : Sure, sir. The last question was basically why you are getting these banking contracts. What are the kind of companies that we are competing with while getting these contracts?

Question: Mihir Manohar - Carnelian Asset Advisors - Analyst : Sure, sir. Thank you very much, sir. And best of luck for the future.

Question: Pranav Mashruwala - Dolat Capital - Analyst : Thanks for the opportunity. So, my question is, one is on NewgenONE comprehensive solution, which we launched in July '21. So, I just wanted to know about the progress of that comprehensive solution rather than individual solutions per se. How is that progressing? Some color on that would be great.

Question: Pranav Mashruwala - Dolat Capital - Analyst : Great. Thank you. So, my next question is how many clients do we have at present in terms of 100 million plus billing? Let's say today as of Q2 versus previous year.

Question: Pranav Mashruwala - Dolat Capital - Analyst : The number of clients of 100-million-plus billing. Earlier, I think we used to provide that data. But I think now we are providing 50-million-plus clients.

Question: Pranav Mashruwala - Dolat Capital - Analyst : Sure. And so lastly, how is our hiring strategy going forward? I mean, we plan to -- Because we are seeing a good --

Question: Mihir Manohar - Carnelian Asset Advisors - Analyst : Sure. Just to follow up on that, sir. What is the time from conversion of a fresher campus in a product company like ours to billing cycle? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2023 / 10:30AM, NEWG.NS - Q2 2024 Newgen Software Technologies Ltd Earnings Call

Question: Pranav Mashruwala - Dolat Capital - Analyst : Okay. Yeah. That's all for now. Thank you so much.

Question: Chirag Kachhadiya - Ashika Institutional Equities - Analyst : Hello. Congratulations for the good set of numbers. I have a couple of questions. On DSI front, what is the development in current quarter? And second, in current -- in last two quarters revenue, what contribution is coming from DSI side? And third, as we have done a deal with -- we have talked with the Coforge. So, what are other -- which are other players which can be potentially there on DSI front from domestic market? Yeah. That's all.

Question: Chirag Kachhadiya - Ashika Institutional Equities - Analyst : Yes. One follow-up question on same. Whenever any partner, M-Panel for GSI related -- what is general time cycle to deliver the project? If you can share it.

Question: Chirag Kachhadiya - Ashika Institutional Equities - Analyst : Thank you, all the best.

Question: Harsh Shah - Dimensional Securities - Analyst : Hi, good afternoon, sir. Sir, a lot of questions. Just wanted to understand which part of the business are we seeing more traction? Is it on the content service side, the OmniDocs part of the business, or is it more on the low-code, no-code automation? Just wanted to get an understanding on that.

Question: Harsh Shah - Dimensional Securities - Analyst : Okay. And if I want to understand the size of the market where we operate, in a traditional market as well as US markets, so if you can quantify what is the addressable market size, just to get an understanding of what is the headroom to grow, that would be helpful.

Question: Harsh Shah - Dimensional Securities - Analyst : Okay. And to get a better understanding, so is it that we need to grow by taking market share from someone, or is it that the demand, which is getting greater, this is the new industry in itself, which is creating the market for players like us?

Question: Harsh Shah - Dimensional Securities - Analyst : That is all from my end. Thank you so much.

Question: Devang Bhatt - IDBI Capital - Analyst : Hi, thank you for taking my questions. Just one thing that you said that, 17%, 18% margins of PAT margins are based on 20%, 25% growth. So if you grow higher than 25%, what is the BPS increase in margin for every 1% increase in revenue? Can you have that quantification? My second question is, what kind of order book do you need, order book growth for you to grow 30% consistently? And the last question is, how many logos have you won with GSI this year, this quarter?

Question: Devang Bhatt - IDBI Capital - Analyst : Yes, sir. Just that how many logos you have won this quarter?

Question: Devang Bhatt - IDBI Capital - Analyst : With GSI?

Question: Devang Bhatt - IDBI Capital - Analyst : Okay. And, sir, last year's DSO deals were how much? YoY deals, you have 105 this quarter. Last year, same time, it was?

Question: Devang Bhatt - IDBI Capital - Analyst : Okay, great. Thank you, sir.

Question: Devang Bhatt - IDBI Capital - Analyst : Okay, thank you. Thank you for taking my question.

Question: Sarang Sanil - RW Investment Advisors - Analyst : Good evening, sir. I hope I'm audible.

Question: Sarang Sanil - RW Investment Advisors - Analyst : Am I audible now?

Question: Sarang Sanil - RW Investment Advisors - Analyst : So, congrats on setting up a new office in New York considering the presence of large banks in the region. Do you think it's time we divert our focus from selling through the GSI route and go sell directly to these banks? If so, are we expecting an increase in the marketing spend, considering also how US players usually do the business there?

Question: Sarang Sanil - RW Investment Advisors - Analyst : Understood, sir, understood. So, also great to see the DSO drop significantly and move towards the planned target. So, sir, what has really changed in this quarter despite seeing good growth in the Indian market and EMEA where customers usually slack on their payments? Is there a change in the way deals are structured or has the efficiency in the collection improved? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 17, 2023 / 10:30AM, NEWG.NS - Q2 2024 Newgen Software Technologies Ltd Earnings Call

Question: Sarang Sanil - RW Investment Advisors - Analyst : Yeah, sir. So, happy to see Newgen celebrating even before the festival season has begun. So, congrats and all the best for the future.