Newgen Software


(Abhishek Basumallick) #1

Newgen Software Technologies Ltd (NS) is a software products company. They operate in the following product areas:

Enterprise Content Management (ECM)
ECM systems provide for the management of unstructured content – that is everything that is not transactional and therefore managed in databases. Content types have increased greatly over the past few years and now include documents, images, audio files, drawings, social media content, email, and faxes. ECM is an umbrella term for the large number of complementary technologies (and often separate products) that are tightly integrated to provide a platform that, in some cases, provides the end-to-end management of content from creation to deletion or transfer to a permanent archive.

Case Management
Case management is a subset of ECM technologies, which combines content, people, and process. Case management refers to the technologies, features, and functions required to address a particular “case” or task. These tasks are process-driven and generally require a combination of transactional data and content.

Business Process Management (BPM)
A simplistic view of BPM is to define it as a discipline involving a combination of modelling, automation, execution, control, monitoring, and optimization of business activity and workflows to support enterprise objectives encompassing different IT systems and participants (e.g. employees, customers, and partners) within and beyond the boundaries of an enterprise. A BPMS is a software product used for driving process improvements and supports the entire process lifecycle, including process discovery, definition and modeling, implementation, monitoring, and analysis and continuous improvement.

Customer Communication Management (CCM)
There are two elements to customer communications: the first is content creation and the second is the management of the output process, whether this is via print or electronic format. The most common use case of CCM is the batch production of monthly, quarterly, or annual bills or statements in a wide variety of formats for delivery through multiple channels. CCM is also used for ad hoc communications, which may be automatically produced as part of a process. Customer communications is an area served by some, but not all, ECM vendors as well as by specialist niche vendors.

Revenue Streams
The Company’s business has multiple revenue streams including from:

  • Sale of software products: one-time upfront license fees in relation to the platform deployed on-premise. 137 cr, grew 17% yoy

  • Annuity based revenue: recurring fees/charges from the following: (grew 25% yoy)

    • SaaS: subscription fees for licenses in relation to platform deployed on cloud
    • ATS/AMC: charges for annual technical support and maintenance (including updates) of licenses, and installation
    • Support: charges for support and development services
  • Sale of services: milestone-based charges for implementation and development, and charges for scanning services

  • Revenue split geographically - India comprises of 35% of revenues, EMEA 33%, USA 23% and APAC (excluding India) 9% of revenues.

  • Active customer base of 520+ clients running their businesses and critical operations on our platforms in 60+ countries. Added 120 new customers including some Fortune 500 companies.

  • R&D expenditure comprised approximately 7% of revenues

  • Generally this business is very sticky because the profile of customers they are either banks, insurance companies, large governments, so once they make an IT initiative it is a very integrated product doing their mission critical job.

  • The co derives a significant portion of revenue from customers in the Banking, government/PSUs, BPO/IT, insurance and healthcare verticals. In 2017, 2016 and 2015, total revenue from customers in these verticals was 85.87%, 83.21% and 78.76%.

  • Company has declared and paid dividends for the fiscals 2017, 2016, 2015, 2014 and 2013 on the Equity Shares at the rate of 10.00%, 15.00%, 75.00%, 50.00% and 20.00%, respectively.

  • Some of the key active customers include Trust Company of America, Mercantil Bank, ICICI Bank, Trafigura, Bajaj Electricals, United Arab Bank, National Commercial Bank Jamaica, Axis Bank, Yes Bank, Kotak Mahindra Bank, Bank Islam Brunei Darussalam, Philippines Resource Saving Bank, ICICI Prudential Life Insurance, Reliance General Insurance, Max Life Insurance, Strides Shasun and Shriram Transport Finance.

  • Gartner ratings:
    - A “Challenger” in Magic Quadrant for BPM-Platform-Based Case Management Frameworks
    - A “Niche Player” in Magic Quadrant for Enterprise Content Management, 2016
    - A “Niche Player” in Magic Quadrant for Intelligent Business Process Management Suites, 2016
    - A “Niche Player” in Magic Quadrant for Customer Communications Management Software

  • Solution Frameworks across verticals
    - Banking - Account Opening, Retail Lending, Commercial lending, Corporate Lending, FATCA compliance, Trade Finance, Collections and Payment Systems
    - Government/PSUs Correspondence Management, Agenda Management, Citizen Centric Services, Office Automation and Grants Management
    - BPO/IT - Accounts Payable, Accounts Receivable, Invoice Processing and Vendor Portal
    - Healthcare Provider Contract Management, Complaints, Appeals and Grievances Management, Mobile Member Enrolment and Claims Repair

WHAT IS INTERESTING

  • Software products have a non-linear business model. The revenues can rise with significant margin expansion with addition of new clients.
  • Increasing use of SaaS (software-as-a-service on the cloud) canbring in long term annuity kind of revenues.
  • Diversified customers including a large part coming through annual maintennance / support contracts providing earnings visibility
  • Very sticky business. Long term customers usually do not leave once they have been using the products for some time.

RISKS

  • Receivables is quite high at 222 cr on Mar31, 2018. Debtor days are above 150 days. The co acknowledges that this is an issue and is looking for active measures to reduce this. However, due to the long term nature of contracts, it will not come down drastically.
  • There is seasonality in revenue generation. Most of revenues come in Q4.
  • Product business is lumpy and there is usually needs an upfront investment in terms of sales and marketing expenses. New customer acquistion is expensive and time consuming.
  • Very competitive field with large global majors in each of the product areas that the company operates in
  • Technology change and obsolense is fast. Company needs to continuously upgrade their product to be in the reckoning.



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DISCLOSURE:
I do not have a position currently in the stock. I am studying the business and may or may not decide to take a position in the future. Please do your own due diligence before investing.


(phreak) #2

Thanks for the great write-up @basumalick. Newgen looks interesting but the huge receivables is a big put off for this sector, especially for someone in the software products business. Have you compared this with Nucleus software? They seem to have some amount of overlap with products in the banking sector related to lending where Nucleus software has their FinnOne Neo and in working capital management where they have FinnAxia. I think these two are pretty similar businesses at the outset.

Nucleus is available at a cheaper valuation and has better working capital management - in line with software products businesses with great return ratios and cash on the balance sheet and good history of dividends and a management which seems intent on building a learning organisation. RoE is poor for Nucleus though due to the cash on their balance sheet while its better for Newgen. Just ideas off the top of my head as I have been researching Nucleus. Would love to hear your thoughts on Nucleus if you have looked at it. Thanks!


(Abhishek Basumallick) #3

I have not looked at Nucleus recently. Used to track it in the 2006-07 period. They always over promised and under delivered. I think they were more in the core banking space than what Newgen is. Newgen is not in banking at all other than through content management and BPM.

High receivables is a big turn off. But probably that may get better with more SaaS clients getting onboard in the future. But reducing high debtor days will be a long and arduous task.

I’m yes of their ECM product, i think it may be similar to Intense Technologies. In. Any case, all these players are marginal players.

The opportunity is in the small and mid-tier companies who may be looking for a very cost effective solution and don’t want to or can afford the big players.


(Hitesh Patel) #4

I was looking at newgen recently. Its a recently listed ipo.

Good thing is there are a lot of resources including AR, presentation, concalls to study the co.

5 year track record has been quite good in terms of growth and consistency.

Receivables have always been high but debtor days are progressively coming down but these can go down only up to a point.

There is a big seasonality to results with second half and particularly q4 always being the best.

Malabar funds and some other marquee investors have a holding in it.

US markets with a lot of midsized banks seeking digital transformation offer good opportunities.

Order size and no of orders from US geography gradually increasing.

Q1 fy19 results are out and seem decent though not materially significant bcos second half remains the key monitorable.

Q1fy 19 management commentary seems encouraging.

Not invested but in my watchlist.


(hamed) #5

Any idea what product license sales do they make ? If the ones on content and BPM (omni…etc) then why does always have to be in Q4 ?

Management mentions that this is cyclical business, but it is not convincing me, why does license sale has to be so much cyclical ?

Anyone can throw light on this ?


(Abhishek Basumallick) #6

I think there is a simple reason. Q4 coincides with the beginning of the calendar year and financial year in US. Companies have budget in the new fiscal and hence most product procurement happens in that period.


(hamed) #7

Thank for your response Abhishek. The US revenue is driven more from Saas offering and the revenue are nicely distributed amongst all geographies, so i dont think this is US driven sales.


(Abhishek Basumallick) #8

SaaS as of now is a miniscule portion of revenue. You can check the opening post of his thread for revenue split.


(Bheeshma Sanghani, PhD) #9

Excerpt on Newgen from Gartners Magic Quadrant

Source : https://www.gartner.com/doc/reprints?id=1-4GR2FM9&ct=171006&st=sb&mkt_tok=eyJpIjoiTldKa05USTJOR016TXpnNCIsInQiOiJrOVJWbTEzc3ArSHloMjZlNDBXazd6MkE5d200ZEkzYlk2VXFxc1wvWG5GQnk5YnNTRGp4UGZhbkZiQWxHRzBEM240cWs0VFFVUlwvT2liVFdqQldVa01MNnZPYXVpZXM0XC9hMzg2MnRPUVI4ZTlScGhnVFFRMWNBaWlVeUtidHVSVyJ9

Newgen Software

Newgen Software is based in New Delhi, India, with regional offices in the U.S., Canada, Dubai, the U.K. and Singapore. Its CSP product has five components: OmniDocs for end-to-end ECM; OmniFlow iBPS for BPM; OmniScan for document capture, digitization and delivery; OmniAcquire for on-demand information capture from a wide variety of endpoints; and the Newgen Enterprise Mobility Framework for building and managing secure, configurable hybrid mobile apps. The vendor offers several well-established, industry-specific turnkey solutions, and develops custom solutions for specific needs. The platform is based on a microservice architecture that enables digital transformation. Its main markets are the financial services (including banking and insurance), government and shared-service sectors. Newgen is a good fit for firms of many sizes, including small and midsize firms, and for those looking for traditional and transformative content services that support regulated and sensitive content use cases.

Strengths
  • Newgen has realigned its CSP strategy and product development to focus on digital business transformation through integrated and flexible content services. The change fits those customers that want to balance requirements for specific business processes with requirements for enterprise modernization.

  • Newgen continues to expand the platform’s range of domain expertise and industry-specific competitive solutions through its growing partner network as well as regional and industry centers of excellence.

  • Nearly all the Newgen reference customers surveyed for this report said they were “completely satisfied” with the vendor’s service and support, and praised its timeliness to respond to support requests.

Cautions
  • Despite increased sales and marketing activities, Newgen is seldom asked about in Gartner inquiries, indicating limited market awareness of its CSP expertise.

  • Newgen is adept at using leading-edge technologies, such as chatbots and conversational UIs, in many of its custom content application projects. But the vendor doesn’t leverage these capabilities, or their benefits for customers, in its mainstream CSP product.

  • Newgen’s reference customers rated as “average” the ease of integration using standard APIs and tools. This indicates that a higher degree of customer effort is needed to embed CSP capabilities within the organization.

Best
Bheeshma


(Bheeshma Sanghani, PhD) #10

Strong results. Excellent Growth in topline and bottomline (on a small base). The first quarter is usually the slowest with subsequent increase in the following quarters due to the seasonal nature of the business.

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Best
Bheeshma


(hamed) #11

Is there a concall for the results ? Last quarter they did one.


(JOSE ABRAHAM) #12

Newgen had a great run today? Are improving fundamentals the reason for the recent run up? Or is it just speculative move ?.


(Krushang) #13

I think it was because of the news that came in yesterday on BSE Corporate Announcement about their new software update.