Newgen Software Technologies Limited — Q4 FY26 earnings call

I think there are a couple of things driving that. Overall, I think there is an operational efficiency coming in as part of the scale. But also this year, if you look at most of the revenue streams which have grown are not service related. So need of hiring more aggressively was not there. We also have started seeing the early advantages of getting AI-based engineering practices built in our system. We had an optimization of roughly around 7% in our manpower numbers for the year.

Explains the drivers behind employee cost management, including operational efficiency and the early benefits of AI, leading to a 7% reduction in manpower.

Asked by Seema Nayak

So I know so far what I could gather is that the challenge that we are seeing is mostly on the large deal sizes. But in the perspective of how we are seeing the market today in terms of deal sizes or in general spending behavior, how we plan to Virender, trying to meet the objective on the growth side and what should be the aspiration for us with this kind of a macro that we are in for FY '27 or maybe on a medium-term basis, what should be the growth band that we should be operating at? ... projecting a number for next year may not be advisable. I think we'll just wait for 1 or 2 quarters till we are getting a much more, better insight of what's happening in the market.

Highlights the ongoing challenge with large deal closures and management's cautious stance on providing FY27 guidance due to market uncertainty.

Asked by Rahul Jain

Yes. So we have this problem in 2 dimensions. One is typically our ability to collect in EMEA over the last 1-month has drastically affected the EMEA trade receivables that. But also we have some challenges in APAC, which are more operational. I think they should get stabilized. Again, I think this year, we'll take an aggressive target to reduce the trade receivables aggressively and try to come back to the normal. ... No, I think this is automatically factored in the ECL norms on that. But trade receivables will not have any direct correlation with provisioning. Provisioning will be built as per the ECL norms on that. Right now, whatever has been is only a delay in payments. There is nothing to have payments at risk.

Addresses a balance sheet concern, attributing it to specific regional collection issues and clarifying that it's a delay, not a risk of non-payment, with provisioning already accounted for.

Asked by Swechha Jain

I think the conversation right now is going on two fronts. One is about what is happening to the service industry and service pricing models. How are they changing? Our business is still decoupled from that. There is a solution and product. There are already multiple models of product pricing already factored in, right from consumption to usage to any other model which is linked to the business. ... So our challenges will be more lying in the product pricing model, which are different than service pricing models. But your point is well taken, and I think already a lot of work is happening along with.

Explores a critical industry trend, AI's influence on pricing, and how Newgen is adapting its product pricing models to consumption and usage, acknowledging it as a key challenge.

Asked by Swechha Jain

No, no. I think this is -- I think a lot has been talked about that AI is the only tool now with the industry group. That's not a challenge. We are looking at AI as an opportunity to accelerate growth.

Clarifies management's view on AI, positioning it as an opportunity for growth rather than a headwind, contrasting with broader industry concerns.

Asked by Rajakumar Vaidyanathan

So I see your deferred revenue has gone up from almost INR220 crores to almost INR300 crores this quarter. So what is driving that? ... No. So, exactly. So basically, the more of a spike which has come in has come in the revenue streams, which are slightly in terms of back ended. They are not realized upfront. So any orders which have come as part of subscription license sale add to the deferred revenue. Any large ATS renewal contracts which have come in of licenses sold over previous years have added to the deferred revenue.

Explains the significant increase in deferred revenue, linking it to subscription license sales and ATS renewal contracts, indicating improved future revenue visibility.

Asked by Rajakumar Vaidyanathan

Yes. So I'm not sure if this question is already answered. But my question is, sir, did you see any revenue deflationary impact from AI, like clients asking you to pass on the productivity that you're getting from AI? ... Yes. I think what's going to happen since globally, enterprises have to invest aggressively in AI. So some amount of budget has to come from run the business or business as usual. So there is going to be some pressure across the globe in terms of optimizing some services which are running as is. So we are still into a product solution base. So our streams like license sale, subscription sale, ATS, is a very little impact. ... But as of now, we are not estimating more than 2%, 3% impact on these two revenue streams for this year in that area.

Addresses a key industry concern about AI's potential to reduce revenue, with management estimating a minimal deflationary impact (2-3%) on specific revenue streams.

Asked by Sumukh