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    Newgen Software shifts biz model focus; expects margin expansion in Q4

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    Newgen Software shifts biz model focus; expects margin expansion in Q4

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    Newgen Software Technologies came out with its Q3 earnings. To get a better understanding of the company’s Q3 performance and its outlook going ahead, CNBC-TV18 spoke to Virender Jeet, CEO, Newgen Software. Jeet mentioned that the company is shifting its focus from a licence-based model to a subscription-based business. Additionally, he expects the company's margin to expand in Q4.

    Newgen Software Technologies came out with its Q3 earnings. The company’s consolidated net profit increased around 35 percent to Rs 47.8 crore in the December quarter of 2021-22. Revenue from operations grew 9.1 percent to Rs 202.5 crore during the quarter under review from Rs 185.51 crore in the year-ago period. To get a better understanding of the company’s Q3 performance and its outlook going ahead, CNBC-TV18 spoke to Virender Jeet, CEO, Newgen Software.
    Jeet mentioned that the company is shifting its focus from a licence-based model to a subscription-based business. He added that the company’s focus has been towards mature markets for the last 3-4 years.
    "Over some time, we have seriously started shifting from the license-based business to a subscription-based business for most of our orders. And while mature markets have been always on subscription, even in the emerging market side, we have started moving to subscription," he said.
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    Shedding light on the company’s deals booked in this quarter, he expects the revenue from it to flow through into the next few quarters. Jeet is expecting to be close to historical growth rates of 18-20 percent in FY22.
    "We have a healthy order book, we booked around 17 orders. But unlike our previous model, when a lot of revenue of those 17 orders would have come in the quarter, now this is going to come over next two, three quarters. We do expect that we can come back to our historical growth trajectories of 18 to 20 percent and that's what we have targeted for this year," he said.
    On margin, he explained that it was unreasonable last year owing to pandemic-related cost savings that felt like the need of the hour back in the day. He believes the company will be seeing margin expansion in Q4 due to higher revenue in H2. Additionally, he mentioned that the company’s long-term margin guidance is at 24-25 percent while its guidance for the profit margin stands at 19-20 percent range.
    He explained, "Historically, our Q1 and Q2 are pretty small and Q3-Q4 are substantially large, and the costs are very flat, they don't change substantially. So that's why most of the margin expansion happens in Q4, and it has been  the company's history in the last 9-10 years."
    "Last year was completely unreasonable margins because of the costs, which were optimized, because the pandemic brought some kind of uncertainty. We have given a long term guidance that we should be able to deliver around 24 to 25 percent EBITDA and roughly around 19 to 20 percent PAT consistently," he said.
    Watch the video for the full interview.
    (With PTI inputs)
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