[C] INTERVIEW: Not in hurry, CMD says Newgen Software aims steady growth

Cogencis, Wednesday, May 30

    --Newgen Software CMD: FY19 revenue growth aim 20-21% 
    --Apr-Sep earnings may be weak on seasonality 
    --Aim to add over 100 new clients in FY19
    --Focus on Europe but client addition may take time 

By Leroy Leo
    NEW DELHI - Newgen Software Technologies Ltd is aiming for a steady growth, instead of setting ambitious targets and risking a burnout in a highly competitive segment that is dominated by global software behemoths.
    "There is no hurry. I am not a fly-by-night operator who has to collect money and go. We are here for the long run. We will slowly build the company," Newgen Software Chairman and Managing Director Diwakar Nigam told Cogencis in an interview.
    Newgen Software, which was listed on exchanges in January, focuses on software for businesses such and banks and insurers, unlike Infosys Ltd and HCL Technologies Ltd that mainly provide services.
    In 2017-18 (Apr-Mar), the company posted a 20% rise in its consolidated revenue from operations to 5.12 bln rupees, while its consolidated net profit jumped 42% to 728.9 mln rupees.
    Nigam expects the company's current pace of growth to continue going forward, and does not believe concentration of clients and revenue growth are a major concern. The Delhi-based company, however, expects earnings in Apr-Sep to be subdued due to seasonal factors.
    "The costs are flat throughout the year, while the sales vary. We may have a minimal profit or minimal loss in Apr-Jun, and from there it may increase as the year progresses," Nigam said.
    In 2017-18, too, a large chunk the company's earnings was from Jan-Mar, when the software-product company posted consolidated revenue from operations of 1.84 bln rupees and a bottomline of 594.6 mln rupees.
    "In our case, there is a large amount of business in India. Also, not only India, but in Middle East (west Asia) and Africa, December is the main quarter."
   In the interview, Nigam spoke about the company's expansion plans going forward, including focus on the banking and other sectors, research and development and valuations.

Following are the edited excerpts from the interview:

Q.  What are your targets for customer addition and sales growth in the current financial year?
A.  We have about 520 customers as of now. In 2016-17 (Apr-Mar) we added 96 clients, and last year, about 120 new clients. This year, we expect to add more than 100 new clients.
    In terms of revenue, we will continue growing at a similar pace of around 20-21% in the current financial year.

Q.  About 80% of your revenue comes from older clients. What are you doing to reduce concentration of sources of revenue?
A.  There is a lot of stickiness in our business. Max New York Life is our customer since 2002, while ICICI Bank Ltd is our customer since 2004. Last year, ICICI Bank gave us a licence order for about 100 mln rupees.
    A bank is using our product. They will continue to use it for 10-15 years. So they will keep giving us revenue. They may use our products for more processes, and buy more licences. It is a good business.

Q.  What are the key focus areas for research and development? 
A.  Last year, we spent 8% of our sales on R&D, now it is about 7%. But the amount still has grown. There is a continuous endeavour to develop new things. We do a lot of work in image processing, about how to take a better photograph of a document even if the camera is shaking. We are also working on recognition say for scripts in a passport. We are also working on blockchain and artificial intelligence.
    R&D provides us a lead. Customers do not want to miss out on something. If they have acquired a platform they would like to see the platform upgraded on a continuous basis. That creates stickiness.
Q.  Which geographies are you targeting for future growth?
A.  The focus is on Europe but it is not very big right now. We have to go slow. It takes time because these are mission-critical software. People don't buy them easily.
    In India, most of the private banks have already gone for our kind of systems, and now public sector banks are under tremendous pressure to have these solutions. Among public sector undertakings, companies like Oil and Natural Gas Corp Ltd, Indian Oil Corp Ltd are going for it.
    In government businesses, we will get our own share because the market is very big. I think government is a business you cannot wriggle out of.

Q.  Are you happy with your valuations? Do you have plans to get more foreign portfolio investors among your shareholders?
A.  We will build the valuation of our stock over three to four years. If we keep growing our revenue 20% each year, you will see our value go up.
    Among investors, we have Goldman Sachs India Ltd, HDFC Mutual Fund and Malabar India Fund Ltd as minority shareholders with a significant stake. Nomura also wanted to invest but they sought a large number of shares.
    At the road show before our initial public offering, most people liked our company, but due to our small size they did not invest. As we grow, I think we will get good investors.
    Shares of Newgen Software closed at 251.85 rupees, down 1%, on the National Stock Exchange.  End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Akul Nishant Akhoury

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Copyright Cogencis Information Services Ltd. 2013. All rights reserved.