EQUITY RESEARCH REPORT: NEWGEN SOFTWARE

Summary

Newgen Software Technologies is a global software Company and is engaged in the business of software product development including designing and delivering end-to-end software solutions covering the entire spectrum of software services from workflow automation to Document management to imaging. Newgen has 530 active clients and is scaling up key clients fast, Despite Pandemic, revenue per top-20 clients grew at 13% CAGR over FY18-21.

ABOUT

Newgen Software is an India based leading Enterprise software company, targeting Enterprise Content services (ECM), Low code business process automation (BPM) and omni-channel customer communication (CCM) space. Newgen has ~530 active clients and is scaling up key clients fast. it is investing 10% of revenues into R&D to sustain/expand products relevance.

TARGET SEGMENTS & PRODUCTS

• NewgenONE Platform  

NewgenONE is a unified platform that offers native process automation, content services and communication management capabilities. Globally successful organizations rely on NewgenONE to rapidly develop and deploy complex, content driven and customer engaging business applications on the cloud. From customer onboarding to service requests, from lending to underwriting, and many more, NewgenONE unlocks simplicity with speed and agility.

• Contextual Content Services (ECM)

Newgen’s Contextual Content Services empower customers in managing the end-to-end lifecycle of enterprise content, from origination to disposition, and providing the flexibility to access and deliver digital content across all channels and devices. It leads to creating a connected and digital workplace to empower customers with contextual information for informed interactions with internal and external customers. Digital Workplace with Contextual Automation, Compliance, and Intelligence – on Cloud.

• Low Code Process Automation (BPM)

Newgen’s low code process automation platform is a proven, intelligent platform to develop complex, context-aware, and customer-centric business applications. It enables rapid application development, end-to-end automation of business processes, and contextual engagement with customers across multiple touchpoints while driving continuous process improvement. Rapid Application Development for Deep and Complex Business Applications – Across Devices.

• Omnichannel Customer Engagement (CCM)

Newgen CCM enhances customer experience with personalized, content-rich and consistent communication across channels, while tapping into various cross and up-sell opportunities across touchpoints, such as e-mail, SMS, web, and print. Use the Business Data and Manage the Communication Output – Personalized and at Scale.

• Newgen Software provides an enterprise-grade digital automation platform to private and government organisations. Its three main products are:

1) OmniDocs for contextual content services, targeted at the ECM segment.

2) iBPS for low code process automation, targeted at the BPM market.

3) OmniOMS for personalised customer communication, targeted at the CCM market.

• Market highly competitive, dominated by Microsoft

Despite the high competition in the market, Newgen has strengthened its position by focusing on delivery of services and spending on R&D. The company is constantly investing in upgrading products, creating vertical specific accelerators and application programmable interfaces(APIs), and expanding into new markets.

MANAGEMENT:

• Chairman’s Message: "We have been able to achieve a smooth transition from license to cloud and subscription revenues, that are more long-term and multi-year in nature, along with accomplishing growth" said Diwakar Nigam.
• CEO’s Message:  "In FY 2021-22, on business front, it has been a good year with strong and profitable growth. We strengthened our subscription business further while ensuring smooth transition from license heavy business model."  "During the year, we acquired Number Theory which is present in the Artificial Intelligence/ Machine Learning (AI/ML) space. With Number Theory’s intuitive AI studio, we will be able to enhance our products and application accelerators with AI/ML-based capability and solidify our position as an AI/ML innovator while tapping a larger share of the market. The decision strongly complements our low code approach and will further strengthen our reach to the area of data sciences." said Virender Jeet.

SHAREHOLDING PATTERN:

FINANCIALS

• The Company’s revenue from operations stood at 77,896.15 lakhs reflecting an increase of 16% in FY2022 as against 67,262.44 lakhs in FY2021.
• The Company reported the EBITDA (adjusted for other income) of 19,466.35 lakhs in FY2022, stable as against 19,190.51 lakhs in FY2021. Profit after Tax stood at 16,421.47 lakhs in FY2022 witnessing a growth of 30% as against 12,648.23 lakhs in FY2021.
• As at 31st March, 2022, property, plant and equipment stood at 16,272.39 lakhs against 15,783.39 lakhs as on 31st March, 2021 largely on account of purchase of additional computers for normal business activities.
• During the year, the Company has made continuous progression despite the uncertain environment and had significant incremental business from existing as well as new customers. 
• Operating Profits were stable on account of normalization of cost base compared to last year as well as increased remuneration to manage attrition.
• Revenue by geographical segment is the primary reporting segment for the Company. EMEA was the strongest growth centre for Newgen during the year witnessing 42% YoY growth, followed by APAC, India and US.
• Newgen provides mission critical solutions across key verticals. Banking and Financial Services vertical continued to be our largest vertical comprising 65% of the revenues during the year followed by Government/ PSU (8%), Insurance (7%), Healthcare (7%) and BPO/IT (4%). 
• Given the current environment, the Company is focussing on SaaS based business model to provide digital transformation solutions to clients, helping them sustain operations despite the restrictions. The Company witnessed strong growth momentum in the subscription revenues (including ATS/AMC and SaaS) which grew by 23% during the year to reach 24,596.03 lakhs.

**The Company’s business has multiple revenue streams including:

1. 1. Annuity based revenue: recurring fees/charges from the following: SaaS, ATS/AMC & Support.
   2. Sale of software products: one-time upfront license fees in relation to the platform deployed on-premise.
   3. Sale of services: milestone-based charges for implementation and development, and charges for scanning services.

FY 21-22 HIGHLIGHTS:

• Streamlining of organization-wide management structure: With effect from 1st September, 2021, Virender Jeet was appointed as the Chief Executive Officer (CEO) while Tarun Nandwani was appointed as the Chief Operating Officer (COO).
• Unveiled NewgenONE platform: NewgenONE is a comprehensive, cloud-ready, low-code digital transformation platform, built natively on a unified architecture, that combines process automation, content services, and communication management capabilities.
• Acquired Number Theory: To further strengthen Newgen’s platform with AI/ML (artificial intelligence and machine learning) modeling and data analytics capabilities, Newgen acquired India-based Number Theory, an AI/ML data science platform company. Number Theory’s platform, AI Studio, will equip Newgen’s products and industry-specific solutions with AI/ML-based capabilities. 

GROWTH POTENTIAL:

• To ensure sustainable growth, the company is re-orienting itself through multiple transitions.

a. Change in sales model to include partnership with system integrators

b. Shift in revenue model towards subscription/annuity

c. Shift in geographic focus towards developed markets

d. Streamlining of organisational structure by clearly defining the roles of CEO and COO

• The company Received first few cloud orders from Australian market this year and will start getting revenues from coming year onwards. It continues to focus on expanding in the mature markets of US, Europe and Australia along with getting deeper into the emerging markets, especially on the back of subscription-based model.
• The year witnessed several expansion deals with existing customers, as well as addition of 53 new logos.

INDUSTRY OVERVIEW:

• The Company’s core addressable market can be broadly classified across low code, hyperautomation, global ECM, BPM and CCM market. Newgen has further expanded its addressable market by developing solution frameworks in key verticals including banking, government/PSU, BPO/IT, healthcare and insurance (addressed as the Application PaaS market).
• Over the last two years, Covid-19 pandemic has increased the relevance of digital transformation projects across the globe. They are triggering investments across front-end transformations and personalization of the customer experience, as well as at the back end, to operate seamlessly, simplify and digitize processes, reduce turnaround times for customer service requests and enhance the end-to-end customer journey.
• According to Gartner Market Estimates, the global content services platform market is estimated at $7.4 billion in 2021. (*1) The business process management suits market is estimated at $2.6 billion in 2021. (*2) The all-encompassing Hyperautomation market is estimated at $ 25.1 billion in 2021. It forecasts that Content services platform market will be $9.3 billion by 2026. (*1) The business process management suits market is estimated to reach $3.1 billion by 2026. (*2). The all-encompassing Hyperautomation market is estimated to be $46.3 billion by 2025.

PATENT:

Newgen has grown patent portfolio across key content service technologies. As of 31st March, 2022, the Company has 44 patent filings to its credit, of which 23 have been granted in India and US. 

RESEARCH & DEVELOPMENT:

• The Company believes that emphasis on R&D has enabled us to remain up-to-date with the technological developments, as well as to cater to the evolving needs of customers.
• For fiscals 2021, 2020, 2019 and 2018, the Company spent 12.79%, 10.74%, 9.23% and 8.67% (as a proportion of total expenditure) respectively on research and development. For fiscal 2022 under review, the Company had spent 13.14% (as a proportion of the total expenditure) on research and development.

GSI PARTNERSHIP

The GSI partnership strategy is central to Newgen’s pursuit of a larger contribution of mature markets to its revenue mix. To that end, the company has been fairly successful in creating a robust funnel via the GSI channel (Global system integrators channel deal funnel was ~40 at the end of the FY21 and is now ~80 at the end of FY22), however, longer closure cycles of GSI led deals have pushed their conversion to revenue further into FY23.

OBSERVATION:

Newgen is expected to record high growth, going forward. To achieve and sustain the growth momentum, the company is pursuing a strategy centring on shift in the revenue model towards SaaS/subscription, creation of an additional sales channel using global system integrators (GSIs), scaling up of operations in developed markets, and streamlining of the organisational structure.