Newgen Software Technologies Ltd Management Discussions

Management Discussion and Analysis

Company overview

Newgen Software Technologies Ltd. is a provider of enterprise-wide unified digital transformation platform with native process, content, communication, intelligence and low code capabilities that drives end-to-end automation at scale. Large enterprises globally leverage Newgens cutting edge technologies to innovate and transform their operations to serve their customers better and faster. Newgen focuses on delivering best-in-class platforms and solutions to its global clientele, thus facilitating their digital initiatives, streamlining operations and improving customer experiences. Newgen has been at the forefront of transforming businesses for over 500 active customers across 76 countries. With a marquee clientele from India, USA, Canada, UAE, Saudi Arabia, UK, Philippines, Indonesia, Singapore and Australia, the Company offers enterprise solutions tailored to the needs of different business verticals. Newgen has emerged as a preferred partner for leading banks, insurance firms, healthcare organisations, governments, telecom companies, shared service centres and BPOs worldwide. Complex industry-specific vertical solutions and use cases can be built on our low-code horizontal platforms, from onboarding to service requests, lending to underwriting, and many more.

The Company is successfully certified and assessed for ISO 9001:2015, ISO 27001:2013 and CMMi 2.0 for Dev Level 3. During the year, Newgen continued to be recognized by industry analysts Gartner in the Magic Quadrants and Forrester in the Wave reports. The Company was recognized as

A Strong Performer in The Forrester Wave™: Digital Process Automation Software, Q4 2023

A "Leader" in The Forrester Wave™: Content Platforms, Q1 2023

A "Strong Performer" in The Forrester Wave™: Robotic Process Automation, Q1 2023 Report

A "Niche Player" in Gartner? Magic Quadrant™ for Enterprise Low-Code Application Platforms, October 2023, published on 17th October, 2023, et al.

Newgen positioned as a Leader in Everest Groups Low-code Technology Providers in Insurance – Products PEAK Matrix? Assessment 2023 The Company is focused on continuous innovation and technology absorption to develop and deliver compelling platforms and solutions. As of March 31, 2024, Newgen has been granted 24 patents across India and US. Moreover, in line with the commitment to leading-edge technology adoption, Newgen has seamlessly integrated emerging technologies such as Robotic Process Automation (RPA), Cloud, AI & ML and Generative AI into our platforms and solutions.

During the year, the Company launched the GenAI-powered enhancement of NewgenONE platform called Marvin for smarter and faster application development, real-time extraction of insights, and next-level content automation

Newgen also launched newer versions of ECM and CCM platforms

The Company released the next generation low-code Trade Finance Solution, IDP Studio (Intelligent Document Processing) with advanced Machine learning algorithms and Newgen AI Data Science Studio

Major developments were made in Retail Loan Origination System, Agri-loan and SME loan accelerators The Company has a resilient business model in place with large annuity revenue streams and diversification across customers and geographies. Moreover, the Companys solutions are of mission critical nature for the long-term customers which serves as the backbone to their operations.

Our Platforms

NewgenONE Platform

NewgenONE is a unified low-code platform for end-to-end automation at scale for enterprises. It facilitates seamless information flow across the organization by connecting the front-office, mid-office, and back-office. Moreover, the platform drives intelligence into operations for rapid innovation and responsiveness. NewgenONE includes and integrates, cutting-edge technologies across process, content, communication, intelligence and low code – all delivered through a single, unified platform.

Contextual Content Services (ECM), Intelligent Process Automation (BPM), Omnichannel Customer Engagement (CCM), Low Code Application Development and Artificial Intelligence and Data Science, are the main offerings of the NewgenONE platform. Newgen has seamlessly integrated emerging technologies such as Robotic Process Automation (RPA), Cloud, AI & ML and Generative AI into our platforms and solutions.

Contextual Content Services (ECM)

The platform automates the content lifecycle of an organisation and streamlines enterprise content management. It also provides efficient tools for capturing content from diverse sources and securely managing it within a centralised repository. It utilises intelligent document processing (IDP) for generating automated, AI-powered insights from different types of documents. With mobile and cloud capabilities, it offers flexible access to content, fostering a highly connected and digital workplace environment.

Intelligent Process Automation (BPM)

Theplatformautomatesworkflowsatalllevelstostreamline end-to-end customer journeys. It helps in designing, executing, monitoring, and optimizing processes, delivering intelligent and context-aware applications and optimizing processes using comprehensive insights and drill-down dashboards.

Omnichannel Customer Engagement (CCM)

The platforms primary aim is to facilitate real-time, personalised engagement across multiple touchpoints. It enables enterprises to interact with customers through their preferred channels, providing full control and visibility across the organisation.

Low Code Application Development

Low Code Application Development helps in rapidly composing complex mission-critical applications with enterprise-grade sturdiness and built-in agility for change by leveraging low code across process, content, communication, and AI.

Artificial Intelligence and Data Science

Newgen, with its AI Cloud platform, automates the entire life cycle of data science projects. By leveraging an intuitive AI Studio, the platform increases productivity, fosters collaboration, and speeds up data science project execution to accelerate data to insights journey.

Our Solutions

Our purpose-built solutions, built on our platform and deployed on cloud, on-premises, or in a hybrid environment, can help streamline end-to-end processes and future proof an organization. We provide vertical solutions in Banking and Financial Services, Insurance, Government/ PSU, Healthcare, Shared services and other industries.

Industry overview

With growing digital transformation across the world, the demand for improved customer experiences and personalised communications continue to rise. Many enterprises now prefer low-code platforms due to their undeniable benefits and efficiency. Hyper-automation, which combines technologies like robotic process automation (RPA), artificial intelligence (AI), machine learning (ML) and low-code platforms, is also gaining traction. Key drivers include the digitalisation of traditional manufacturing, increasing adoption of AI/ML technologies and the need for process optimisation across industries. The demand for process-agnostic software also continues to be high due to growing digital transformation of enterprises. Worldwide IT spending is expected to total $5.06 trillion in 2024, an increase of 8% from 2023, according to the latest forecast by Gartner, Inc.

Worldwide IT Spending Forecast (Millions of U.S. Dollars)

	2023	2023	2024	2024
	Spending	Growth (%)	Spending	Growth (%)
Data Center Systems	236,179	4.0	259,680	10.0
Devices	664,028	-9.1	687,943	3.6
Software	914,689	12.6	1,042,174	13.9
IT Services	1,385,120	6.1	1,519,928	9.7
Communications Services	1,487,161	3.3	1,551,288	4.3
Overall IT	4,687,177	3.8	5,061,013	8.0

Source: Gartner (April 2024)

According to Gartner Market Estimates, the global content services platform market is estimated at $8.0 billion in 2023. (*¹) The business process automation market is estimated at $2.9 billion in 2023. (*²) The all-encompassing Process-Agnostic Software that enables Hyperautomation market is estimated at $ 38.5 billion in 2022. (*³) It forecasts that Content services platform market will be $9.4 billion by 2026. (*1) The business process automation market is estimated to reach $3.4 billion by 2026. (*²). The all-encompassing Hyperautomation market is estimated to be $65.4 billion by 2026. (*³)

Financial performance

Consolidated financials in _ lakhs

(All amounts in INR lakhs, except per share data and unless otherwise stated)	FY 2024	FY 2023
Revenue
Revenue from operations	1,24,382.86	97,397.88
Other income	4,806.43	3,398.57
Total revenue	1,29,189.29	1,00,796.45
Expenses
Employee benefits	62,831.43	51,589.93
Finance costs	418.18	425.10
Depreciation and amortization	2,796.77	2,467.14
Other expenses	32,720.42	24,586.23
Total expenses	98,766.80	79,068.40
Profit before tax	30,422.49	21,728.05
Profit after tax for the year	25,160.50	17,701.15
Other comprehensive income/(loss) for the year, net of income tax	-214.92	520.87
Total comprehensive income for the year	24,945.58	18,222.02

Revenue from operations

The Companys business has multiple revenue streams including: Annuity-based revenue: periodic fees or charges from the following sources:

SaaS: It refers to on-premises subscription payments for licences related to cloud-deployed platforms.

ATS/AMC: It is a yearly fee for technical assistance, licence maintenance (including upgrades) and installation.

Support: It is the fee for services related to development and assistance.

Sale of software products: It denotes a one-time upfront license cost for the on-premises platform.

Sale of services: Services are sold with milestone-based fees for development and implementation as well as fees for scanning services.

On a consolidated basis, the Companys revenue from operations stood at _1,24,382.86 lakhs,increasing at 28% in FY24 as against _97,397.88 lakhs in FY23 reflecting strong financial performance, driven by robust growth especially in the traditional markets – India and EMEA. The Company witnessed growth in business from existing banking customers, as well as healthy new logo additions

- 51 in FY24. There has been a notable increase in the revenue per customer. For the year, the annuity based revenues were at Rs 74,981.58 lakhs, comprising 60% of our revenues.

Segment-wise performance

In terms of geographies, EMEA was the strongest market for Newgen during the year, witnessing 39% YoY growth, followed by India growing at 33% YoY driven by customer journey transformations especially in the Banking and Financial services sector. APAC market witnessed a growth of 15% YoY and Americas market grew at 12% YoY. The Banking and Financial Services vertical continued to be the largest contributor of revenue, comprising 70% of the revenues during the year, followed by Government/ PSU (8%), Insurance (7%), and Healthcare (6%).

Profit and Margins

The Company reported EBITDA (adjusted for other income) of _ 28,831.01 lakhs in FY24, as against _ 21,221.72 lakhs in FY23, witnessing a growth of 36% YoY. Profit after Tax stood at _ 25,160.50 lakhs in FY24, as against _ 17,701.15 lakhs in FY23, witnessing a growth of 42% YoY. The PAT Margin was at 20%.

Share Capital

During the financial year, the Authorised Share Capital of the Company stood at _ 18,010.00 lakhs. The issued, subscribed and paid-up equity share capital of the Company, as of March 31, 2024, is _ 14,029.18 lakhs divided into 14,02,91,802 Equity shares of _ 10 each. During the year, Company issues bonus equity shares in the proportion of 1:1, and as a result allotted 7,00,69,401 bonus equity shares of _ 10 each.

Other Equity

Other Equity as of March 31, 2024, was _1,08,373.58 lakhs. The total retained earnings were at _96,644.02 lakhs. During the year, the Company earned a net profit of _25,160.50 lakhs. Newgen has declared a dividend of _4 per share, post bonus issue of 1:1.

Property, Plant and Equipment, Capital Work in Progress and Intangible Assets

As of March 31, 2024, property, plant and equipment stood at _ 16,452.32 lakhs against _ 16,476.35 lakhs, as of March 31, 2023. The Capital work in progress was at _ 279.53 lakhs. This is largely on account of the purchase of additional computers for normal business activities, setting up of office premises and purchase of office assets. The right-of-use assets stood at _7.063.44 lakhs as against

_ 6,383.64 lakhs as of March 31, 2023. The intangible assets of the Company are at _1,022.03 lakhs..

Investments

The aggregate fair value of investments in unquoted bonds and mutual funds is _36,498.89 lakhs.

Trade receivables

The trade receivables (net of allowances and credit impairments) as of March 31, 2024, are _44,353.35 lakhs, against _ 38,816.58 lakhs on March 31, 2023. During the year, Debtor Days (net) stood at 130 days as compared to 145 days in FY23. The Collections witnessed an improvement of 34% during the year.

Other financial assets (current)

Other Financial Assets (_9,462.08 lakhs) largely comprise contract assets (net) pertaining to amounts recognised, based on services performed in advance of billing, in accordance with contract terms to the extent of _7,080.70 lakhs.

Cash and cash equivalent and other bank balances and Cash Flow

Cash and Cash Equivalents stood at _12,457.31 lakhs and other bank balances stood at _25,136.83 lakhs as of March 31, 2024. The Company witnessed healthy cash flow generation with net cash generated from operating activities was at _ 28,141.07 lakhs in FY24, compared to _ 13,635.43 lakhs in FY23 due to high growth in collections and improved operating profits.

Current liabilities

Current liabilities represent borrowings, trade payables, other financial liabilities, deferred income, short-term provisions and other current liabilities. As of March 31, 2024, the total current liabilities are _ 37,958.90 lakhs (_ 29,642.45 lakhs as of March 31, 2023). Out of these, the deferred income comprises _ 20,513.58 lakhs.

Key financial ratios

Sr.
	Particulars	FY 2023-24	FY 2022-23
No.
1	EBITDA Margin (%)	23.18%	21.79%
2	Net profit margin (%) on revenue	20.23%	18.17%
3	Return on Equity ratio (%)	22.81%	19.73%
4	Trade Receivable turnover ratio	3.10	3.06
5	Return on capital employed (%)	23.18%	20.39%

Opportunities and challenges

Opportunities

As companies continue to embark on digital transformation journeys, the demand for new and sophisticated software solutions is rising. Content management is at the core of digital transformation. With our strong product portfolio and investments in content management, process automation, customer communication with artificial intelligence cloud capabilities, and skilled talent pool, it creates an opportune landscape for Newgen to tap the market opportunity. Further adoption of cloud-based solutions, growing focus on regulatory compliance, increased demand for Generative AI, Artificial Intelligence and Machine Learning is expected to expand opportunities for the company.

Challenges

The various challenges that the Company addresses include uncertain global economic conditions; changes in fiscal, economic or political conditions globally, currency risks; increasing competition; talent availability, changing technologies and regulatory changes in the industry the company operates in and increasing industry concentration.

Risk Management

Risk	Description	Mitigation measures
Uncertain environment and business continuity Risk	Global economic uncertainties, recessions, currency exchange fluctuations and geopolitical tension may impact financial performance of a Company. Economic downturns could also lead to reduced customer spending on software solutions. In addition, Natural calamities, man-made disasters, wars etc. may lead to disruption to the business, demand environment, and customer service. The Company faces business continuity risk if the organization is unable to ensure continuity of its operations across clients, delivery locations, and enabling functions.	As an organization, it is Newgens endeavour to continuously monitor, promptly and effectively respond to disruptive events in a complex and fast-changing global landscape. To deal with such market-specific risks, the Company endeavours to de-risk the geographical dependence and expand its clientele across geographies continuously both in traditional and mature markets. The Company has 500+ active clients across 76 countries. To deal with policy challenges, the Company has been giving an emphasis on growing its regional presence and hiring local talent, without compromising on economies of scales and cost. To deal with environmental changes, the Company has a Business Continuity plan in place to minimize the impact of interruptions to business.
Technology/ obsolescence, Cyber Security and Data Privacy Risk	Rapid technological advances, changing delivery models and evolving standards in computer software development and communications infrastructure, changing and increasingly sophisticated customer needs and frequent new product introductions and enhancements characterise the industry in which Newgen competes. Disruptive technologies such as Cloud, Big data, social and smart devices are changing the way business is done. With the ever-evolving technology landscape, there is continuous risk to the confidentiality, integrity and availability of data. The Companys success depends upon its ability to anticipate, design, develop, test, market, license and support new software products, services, and enhancements of current products and services on a timely basis in response to both competitive threats and evolving industry requirements and ensuring cyber security. Risks associated with cyber threats, data breaches and information security could lead to financial losses, reputational damage and legal implications.	The Companys constant investment in Research and Development (R&D) and intellectual properties ensures that it stays ahead of evolving technology trends and changes and helps the Company mitigate this risk. By actively monitoring and adapting to technological advancements, the Company remains agile and capable of leveraging emerging technologies, to improve its solutions and offerings. The Company maintains focus on cyber security to guard against the risk of cyberattacks, data privacy breach and digital risks. Newgen prioritises continued reinforcement of stringent security policies and procedures (ISO certifications), continuous monitoring, regular audits and robust security measures to safeguard its systems and data against potential threats that significantly reduce the likelihood and impact of cyber incidents. There is also rigorous focus on trainings/ awareness programs.
Currency risk	With around 70% of revenues originating from international markets, Newgen is consistently vulnerable to unexpected fluctuations in exchange rates, which have the potential to impact the Companys revenue and profits.	The Company has implemented a comprehensive hedging strategy to effectively manage currency risks. Further, export collections and payments are made through EEFC account to avoid currency fluctuations.

 

Risk	Description	Mitigation measures
Talent Management/ Attrition Risk	The Companys business depends largely upon its highly skilled technology professionals and its ability to hire, attract, motivate, retain and train these personnel. Any inability to maintain a skilled and motivated team of professionals or supply chain disruptions can affect the business.	As a Company, there is strong focus on nurturing the existing workforce and attracting new talent through Newgens various HR policies and initiatives. The Company also has a defined Employee Stock Options and Restricted Stock Units scheme.
Credit Risk	Customer credit risk refers to the potential of customers defaulting on their financial obligations.	The Group has credit guidance in place and the exposures to these credit risks are monitored on an ongoing basis. Credit risk is managed by the Group through credit approval, establishing credit limits and continuously monitoring the credit worthiness of customers to which the Group grants credit term in normal course of business. Credit limits are established for each customer and reviewed quarterly. The Group establishes an allowance for impairment that represents its expected credit losses in respect of trade receivables.
Acquisition-related Risk	As part of the inorganic growth strategy, the Company may acquire other Companies, businesses or products from time to time and the success of these acquisitions depends upon several factors. These include the effective integration of acquired employees with the rest of the company and the optimum realization of synergies between acquired business and the company. There could be additional challenges on account of inadequate due diligence, process related risks, unforeseen liabilities / financial or operational challenges, legal risks and reputational risks that can lead to delays or losses or unforeseen issues during the M&A process.

Our strategies

Newgens strategies are based on addressing the market opportunities in enterprise platforms for ECM, BPM and CCM products and the low code and hyper-automation market, creating domain rich solution frameworks on the platform and using low code platform capabilities to create solution frameworks. These include:

Continuous Innovation

Newgen is committed to innovation and continuous investment to enhance its offerings and rigorously works on expansion of the product portfolio through investments in advanced features and technologies. The Company prioritizes substantial investments in Research and Development (R&D) to expand the technology stack further and boost digital transformation for customers. As of March 31, 2024, Newgen has been granted 24 patents across India and US. Moreover, in line with the Companys commitment to leading-edge technology adoption, Newgen has seamlessly integrated emerging technologies such as Robotic Process Automation (RPA), Cloud, AI & ML and Generative AI into its solutions. With a keen understanding of technology trends, the Companys development teams work closely with delivery functions to identify areas where Newgen can scale up the products and meet the needs of customers.

Expansion of business in traditional markets

The Company has a strong foothold in traditional markets of India, Middle East and Africa. The Company plans to get into deeper and long-term relationships with its customers in these markets through expanded offerings especially across Banking, Insurance and Government segments as well as tap newer market opportunities including Saudi Arabia.

Focus on attractive verticals in select mature markets

The Company plans to expand its market share across key geographies and solutions. Its platform is designed to be natively multi-lingual to address challenges in multinational organizations. Newgen has been operating in 76 countries and believes that it has a significant opportunity to continue to grow its international footprint. It is investing in direct and indirect sales channels, professional services, customer support and channel partners to expand the geographical footprint. The Company is working on brand initiatives, go-to-market strategy and offerings for mature markets including USA, Europe, Canada and Australia. Through its direct and indirect sales channels, it plans to further grow the brand presence and partner networks in these new markets. Newgen has a strong presence across regions in the banking, financial services and insurance verticals and intends to continue to expand the customer base in these verticals in select mature markets. The Company is specifically targeting larger sized banking customers in the mature markets.

Expansion of offerings in core verticals

The Company has used the platform to create vertical domain rich products in several verticals, including banking, government/PSU, BPO/IT, insurance and healthcare. While the platforms are industry-agnostic, investments have been made to enhance the expertise of sales and marketing for key industry verticals. Newgen believes that focusing on the digital transformation needs of organizations within these industry verticals can help drive adoption of the platform. The Company is working deeper in the insurance vertical offerings.

Attract, develop and retain highly-skilled employees

The Companys employees are one of its most important assets. It focuses on the quality and level of service that the employees deliver by investing in recruitment, development, retention, maintenance of a culture of innovation and by creating both a challenging and rewarding work environment. Newgens talent development strategy focuses on engaging, motivating and developing a high performing workforce and aims to create and sustain a positive workplace culture for employees. Safety of the employees is of utmost importance to the organization and the Company has rapidly moved to a remote working environment with high engagement levels with the employees. The Company has Employee Stock Option Schemes and Restricted Stock Units in place for talent retention.

Expansion through inorganic route

The Company may also explore, with extreme care, the inorganic route for expansion of product capabilities or market presence from time to time.

Internal control systems and their adequacy

The Companys systems of internal financial control comply with the requirement of Companies Act 2013. The explanation of the term ‘Internal Financial Control for the Company, goes beyond the context of section 134(5) (e) and includes policies and procedures adopted by the Company for ensuring the orderly and efficient conduct of its business and its financial reporting., Newgen internal controls commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance regarding recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance of corporate policies. In view of the above and for safeguarding the assets of the Company, preventing and detecting fraud or other irregularities and maintaining proper books of account and to ensure adequate internal financial control, the Company is already pursuing various Standard Operating Procedures (SOPs), Vigil Mechanism and Audit Mechanism (through Internal Audit for Financial year 2023-24, Secretarial Audit and Statutory Audit).

Newgen also undergoes periodic audit by specialised third party consultants and professionals for business specific compliances such as Quality Management, Information Security Management, among others. It has continued its efforts to align all its processes and controls with global best practices. Our management assessed the effectiveness of the Companys internal control over financial reporting as of March 31, 2024. Walker Chandiok & Co LLP, Chartered Accountants, the statutory auditors of Newgen have audited the financial statements included in this annual report and also reported on our internal control over financial reporting (as defined in section 143 of Companies Act 2013). The Audit Committee review reports submitted by the management and audit reports submitted by PricewaterhouseCoopers Services LLP, internal auditors and Walker Chandiok & Co LLP, statutory auditors. The audit committee also meets Newgens Statutory Auditors as well as Internal Auditors to ascertain, interalia, their views on the adequacy of internal control systems and keeps the Board of Directors informed of its major observations periodically. Based on its evaluation (as defined in section 177 of the Companies Act 2013), the audit committee has concluded that, as of March 31, 2024, the internal financial controls were adequate and operating effectively.

Human Resource

The Company remains committed to create an inclusive working environment that is conducive for achieving personal as well as professional goals. It has established policies to ensure employee welfare and align its people with the Companys culture and values.

Significant efforts were made all year long to reinforce important organisational functions and create a motivating work culture and a cohesive team. Special emphasis is also laid on employee rewards and recognition as well as regular trainings. The Company has a strength of about 4500 people, on a consolidated basis, working towards achieving the long term objectives and goals of the organization.

Outlook

The Company is working steadily towards executing its transformation charters and long term plans across dimensions. This includes working on new product offerings, strengthening teams across domains, expanding in traditional and mature markets, in order to strengthen its presence and capitalise on emerging opportunities. Additionally, the Company is committed to expanding its product portfolio by working deeper in the banking and insurance verticals, to cater to emerging market demands. Newgens focus is on sustained growth through innovative solutions, enhanced market penetration and strategic diversification. These efforts may help position Newgen for continued success and leadership in the ever-changing platform landscape.

Cautionary statement

Managements discussion and analysis of the financial condition and results of operations include forward-looking statements based on certain assumptions and expectations of future events. The Company cannot assure that these assumptions and expectations are accurate. Although the Management has considered future risks as part of the discussions, future uncertainties are not limited to Management perceptions.

1 Content Services Platform – Forecast: Enterprise Application Software, Worldwide, 2022-2028, 1Q24 Update : Published: March 2024 : Authors: Amarendra ., Chris Pang, Craig Roth, Jim Hare, Julian Poulter, Balaji Abbabatulla, Kevin Quinn, Roland Johnson, Radu Miclaus, Alexandre Oddos, Anand Chouksey, Arunasree Cheparthi 2. Business Process – Forecast Analysis: Application Infrastructure and Middleware Software, Worldwide : Published: October 2023 : Authors: Varsha Mehta, Nicholas Carter, Fabrizio Biscotti, Kelli Smith 3. Hyperautomation – Forecast Analysis: Hyperautomation Enablement Software, Worldwide : Published: October 2022 : Authors: Cathy Tornbohm, Varsha Mehta, Tarun Rohilla, Anna Griffen