Newgen Software Technologies , a leading provider of low-code digital transformation platforms, reported a muted performance for the first quarter, citing global economic uncertainty and geopolitical challenges.

Financial Highlights

• Revenue stood at INR 321.00 crores
• Profit after tax (PAT) reached INR 50.00 crores
• Net margins at 15.50%
• Subscription revenue, including SaaS and ATS/AMC, grew by 19% year-on-year to INR 121.00 crores

Challenges and Market Dynamics

The company faced several headwinds during the quarter:

• Slower customer decision-making and project starts
• Lower funnel conversion than anticipated
• Deferrals and closure delays impacting license sales and implementation revenues
• Smaller average deal sizes compared to earlier periods

Despite these challenges, Newgen Software Technologies secured 12 new logos during the quarter, demonstrating continued market traction.

Key Wins and Geographic Performance

Newgen reported significant wins across various geographies:

• EMEA: A USD 2.50 million deal with a bank for enterprise workflow and content management
• Saudi Arabia: A USD 1.60 million contract with a finance company for an end-to-end financing system
• Philippines: New customer acquisition in the insurance and healthcare sector for health claims and OCR systems
• India: Partnership with a Small Finance Bank for a personal loan origination system

Strategic Focus and Investments

The company continues to invest in its future growth:

• 9% of revenues allocated to R&D initiatives
• 26% of revenues directed towards sales and marketing activities
• Ongoing investments in AI-driven products and solutions, including machine learning and Generative AI

Management Outlook

While acknowledging the current challenges, Newgen's management expressed cautious optimism for the future:

• Gradual improvement in deal closures expected in coming quarters
• Better growth anticipated in the second half of the year
• Focus on AI-led transformation, effort optimization, and building resilient client relationships

Cash Flow and Balance Sheet

The company maintained a strong financial position:

• Net cash generated from operating activities: INR 81.00 crores
• Net trade receivables: INR 504.00 crores (as of June 30)
• Net DSO (Days Sales Outstanding): 123 days

Virender Jeet, CEO of Newgen Software Technologies, commented on the results: "We began the year in a challenging but transitional environment. During the year, our strategic focus would remain on AI-led transformation, optimization of effort and building resilient client relationships. We believe that our funnel continues to be strong and closure would gradually improve in the coming quarters, leading to improvement in overall growth in the second half of the year."

As Newgen Software Technologies navigates through this period of economic uncertainty, the company remains committed to its long-term growth strategy, leveraging its strengths in low-code platforms and vertical-specific solutions to drive digital transformation across industries.

Newgen Software Technologies Ltd. (NSE: NEWGEN) has experienced a significant decline in its share price following the release of its disappointing first-quarter results. The stock has fallen by over 16% in the past three trading sessions, with a 4.8% drop on Monday alone, closing at Rs 916.80.

Financial Performance

The company's financial results for Q1 revealed a mixed picture:

Key Highlights

• Sequential Decline: While there was a slight year-on-year improvement in net profit, the company faced a sharp 54% sequential decline from the previous quarter's Rs 108.00 crore.
• Revenue Pressure: Revenue from operations saw minimal year-on-year growth but experienced a significant quarter-on-quarter drop of over 25%.
• Margin Compression: EBITDA margins compressed to 14% from 15% year-on-year, primarily due to higher employee costs and finance expenses.
• Geographic Performance: Revenue declined across key markets, including India, Europe, APAC, and the US, on a sequential basis.

Market Response and Analyst Outlook

The market has reacted negatively to Newgen Software's Q1 results, with the stock price declining sharply. Despite the recent setback, analysts maintain a positive outlook:

• Analyst Ratings: The consensus among analysts remains 'Buy'.
• Target Price: The average target price stands at Rs 1,091.00, suggesting an 18% upside potential from the current levels.
• Stock Performance: The stock has experienced significant declines, falling 29% over the past six months and 46% year-to-date.

Conclusion

Newgen Software's Q1 results have disappointed investors, leading to a sharp correction in its stock price. While the company managed to post a modest year-on-year growth in net profit, the sequential decline across key financial metrics has raised concerns. The management will need to address the challenges in revenue growth and margin pressure to regain investor confidence. Despite the current headwinds, analyst optimism suggests potential for recovery, but investors should closely monitor the company's performance in the coming quarters for signs of improvement.