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IT product company, Newgen Software Technologies, is eyeing a continued flow of annuity-based income as it looks to maintain a double-digit revenue growth momentum in the medium term. The company is eyeing EBIDTA (earnings before interest, depreciation, tax and amortization) levels of 22-23 per cent.
According to Diwakar Nigam, Chairman and Managing Director, Newgen, which is listed on the bourses, has begun working with global system integrators (GSI) – companies that bring together different component subsystems and make them function together – as a part of its focus on increased annuity-based revenues.
Apart from the banking and insurance industries, government and shared services sectors have been prime users of its technology.
Nearly 30 per cent of its revenues are from Indian clients; while 70 per cent is overseas, driven primarily by the USA, UK, Europe, Middle East, Africa and APAC.
The move to tie-up with GSI’s will also help Newgen tide over global uncertainties in recent times. For instance, due to the pandemic and the resulting travel restrictions, new contracts from overseas markets have been on the slower side.
The company is also strengthening its sales team across geographies like the USA and UK.
Ramps up offering
In the first half of FY21, the company focussed on ramping up offerings to Indian clients, primarily, banking, financial services and insurance sectors.
“We won 11 new logos (contracts) during the Oct-Dec quarter, with four in the America region. Compared to the first six months when new contracts were slow, things have picked up in Q3FY21. We are working with GSIs, and this will help us with new contracts; and maintain a steady stream of revenues. Annuity based income is growing at 27 per cent for us over the last five years,” Nigam told BusinessLine .
Financials
For the nine months between April and December 2020, Newgen reported a near-flat turnover of ₹473 crore, YoY; with net profit witnessing a near 136 per cent jump, YoY, to ₹74 crore. Revenues picked up substantially in the Oct-Dec period.
A break-up of income during the period showed verticals like subscription revenues (that include AMCs and Cloud) were up by 22 per cent at ₹148 crore; while annuity revenue streams (ATS/AMC, Support, and Cloud/SaaS) was up five per cent at ₹285 crore.
“In terms of revenue, we are looking to have a double-digit growth in the medium term,” he added.
According to Nigam, the company is confident of maintaining margins in the 22-23 per cent range for the long term.
“Although, EBITDA margins were at 26.5 per cent for the April – Dec period, the number, however, is expected to come down as costs like employee travel expenses, on-site hiring and so on pick-up,” he said.
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