NEWGEN - Newgen Software Technologies Limited Share Price

The management of Newgen Software Technologies Limited provided an optimistic outlook for the future while acknowledging current market challenges. As of Q3 FY26, the company achieved a total revenue of INR 1,122 crores, reflecting a 7% year-on-year growth. For Q3 alone, revenues stood at INR 400 crores, marking a 5% year-on-year increase. The annuity revenues grew 20% year-on-year to INR 250 crores, with subscription revenue reaching INR 134 crores, a robust 29% growth.

Management noted the onboarding of 34 new logos, reinforcing the trust in their platform. They highlighted major wins, including a public sector bank in Saudi Arabia (INR 38.6 crores), a U.S. financial institution ($5.3 million), and several other noteworthy contracts across various geographies. However, they pointed out challenges in the decision-making cycle for larger enterprise deals, particularly in India and the Middle East, where they experienced a slowdown.

Management emphasized a strong deal pipeline and anticipated a license revenue recovery in upcoming quarters, despite current elongation in decision cycles. They remain confident about the potential of AI-driven solutions to enhance productivity and competitive differentiation. The adjusted profit after tax for the quarter was INR 90 crores, with net margins at 22.5%. Investment in R&D remained strong at 9% of revenues, alongside 23% in sales and marketing.

Looking ahead, management expressed excitement about next-generation AI-led products, predicting that these innovations would drive customer value across industries and contribute to long-term sustainable growth. They anticipate a healthy recovery in traditional markets and remain well-positioned to capitalize on emerging opportunities.

Question 1: "This quarter, growth in our core markets was soft. As you look into your pipeline, how do we see the health of the business in the core markets of India and EMEA?"

Answer: "Ruchi, while we saw a strong deal momentum with 34 new logos, the core markets like India and the Middle East did not yield substantial large license deals this quarter. The pipeline looks promising, but larger deal conversions are taking longer. We're aiming for improvements in Q4 and expect better performance next year as confidence grows and decision-making stabilizes."

Question 2: "Are smaller ticket size AI deals easy in the domestic market and EMEA?"

Answer: "Yes, smaller ticket sizes are more tactical and we see fewer challenges in that segment. AI is now integral to all deals, leading to continued activity in acquiring new logos. The real issue lies in securing large license deals, which have been scarce compared to previous quarters."

Question 3: "AMC revenue has caught up at a healthy pace of growth. Do we see this pace or momentum continue in the near-term quarters?"

Answer: "Certainly. AMC growth is driven by successful past licensing and project completions going live, which cumulative leads to ongoing revenue growth. We anticipate this momentum to continue in the upcoming quarters."

Question 4: "We have seen that our order announcement even in Q2 and Q3 were strong, but that translating into growth has not been the case in terms of the actual revenue. Is it that there are some nature of deals that we are not able to recognize as much?"

Answer: "You are correct. Many orders from regions like the U.S. are subscription-based, which results in delayed revenue realization. Traditional markets allow for more immediate revenue recognition, but SaaS and subscription models take time to ramp up before they generate revenue."

Question 5: "You mentioned that the implementation is lower even in SaaS or subscription deals. Can you elaborate why you say that?"

Answer: "In subscription models, the lag between when an order is placed and when implementation starts is significant. This ramping-up period means we only see revenue realization after achieving specific milestones, which can delay our implementation revenue across quarters."

Question 6: "In general, how effective is the AI in our business segment? And within the next 2, 3 years, how do you expect, like how much more effective is it going to be?"

Answer: "Currently, AI is generating significant interest, and our AI-led products are gaining traction. We expect that within 2 to 3 years, AI will be central to all our business solutions, amplifying customer value and transforming workflows."

Question 7: "Are we facing any pricing pressure from our legacy customers because of AI?"

Answer: "No, we haven't faced significant pressure on pricing for our products. Customers are primarily using our top-tier, AI-ready products, which remain in demand. However, we do see challenges in human-resource-led services due to companies optimizing their personnel."

Question 8: "Will the new H-1B visa rule of $100,000 impact our U.S. revenue streams or your ability to service customers there?"

Answer: "No, we do not rely on sending personnel between countries or H-1B visas for our business model. We primarily hire locally for operations and services in the U.S., so we anticipate continued expansion without disruption from visa regulations."

Question 9: "Is there no opportunity for SaaS-based revenue or subscription-based revenue in India? Or is it not something that Indians prefer?"

Answer: "Indian companies have traditionally preferred license-based models, but we are gradually seeing a shift toward subscription and cloud-based solutions. While SaaS revenues are growing, they are still a smaller segment compared to license sales, which we expect will take time to balance out."