Summary
Newgen Software Technologies Limited - Q3 FY26 Earnings Call Summary Tuesday, January 20, 2026 4:00 P.M. IST
Event Participants
Executives 5 Arun Gupta (CFO), Deepti Mehra Chugh (Head IR), T.S. Varadarajan (Co-Founder & Whole-Time Director), Tarun Nandwani (COO), Virender Jeet (CEO)
Analysts 6 Aditi Patil, Diya Brijwani, Meet Virani, Mihir Manohar, Rahul Jain, Rithvik Reddy
Financials & KPIs
| Metric | Reported | Commentary |
|---|---|---|
| Total Income (9M FY26) | ₹1,122 crores | +7% YoY; driven by strong subscription-led growth in mature markets. |
| Total Revenue (Q3 FY26) | ₹400 crores | +5% YoY; growth slowed due to high license base last year and elongated deal cycles. |
| Annuity Revenue (Q3) | ₹250 crores | +20% YoY; represents 62.5% of total revenue, enhancing visibility. |
| Subscription Revenue (Q3) | ₹134 crores | +29% YoY; strong performance in US, UK, and Australia geographies. |
| Adjusted PAT (Q3) | ₹90 crores | 22.5% net margin; excludes ₹35 crore impact from new Indian labor code. |
| Reported PAT (Q3) | ₹55 crores | Includes ₹35 crore one-time provision for labor code changes. |
| R&D Investment (9M) | 9% of Revenue | Maintained consistent focus on next-gen AI-led products. |
| Net Trade Receivables | ₹530 crores | Resulted in a Net DSO of 125 days as of Dec 31, 2025. |
Geographic & Segment Commentary
- USA and Mature Markets: The US grew 21% YoY, while UK and Australia also showed robust subscription-led traction. Strategy remains focused on high-value verticals like health insurance and large-scale ECM for banking.
- India and EMEA: Growth was muted as these traditional markets saw a decline in large license deals. Management noted uncertainty around AI-led transformations causing elongated decision cycles in these regions.
- Banking & Insurance: Deepening leadership via Policy Administration Systems (PAS) in Europe and loan origination/management systems in Saudi Arabia and India. Secured a GBP 1.5 million insurance deal in Europe and multiple ₹14-16 crore banking deals in India/Malaysia.
Company-Specific & Strategic Commentary
- AI-Driven Product Strategy: Focused on embedding AI in core offerings including generative process design and intelligent document understanding. AI is now a component in nearly all new deals, with early deployments live in India and Singapore.
- Operating Leverage through AI: Management is using AI tools internally for engineering and tooling, which has kept headcount flat (approx. 4,500) and improved delivery productivity.
- Subscription Transition: Shift toward subscription models in US/UK is increasing deferred revenue but creating a lag in immediate revenue recognition compared to traditional upfront licenses.
- Workforce Optimization: Implemented wage hikes for ~3,500 employees (excluding GM level and above) in October; total manpower costs were optimized through AI-led efficiency.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| License Recovery | Q4 FY26 / FY27 | Near-closure pipeline remains active; recovery depends on large deal fruition in India/EMEA. |
| Australia Revenue | $10 million (FY27) | Expected to double from current ~$5 million base as referenceability improves. |
| Implementation Revenue | Near-term expansion | Expected to ramp up as recent subscription wins in Q2/Q3 move past the initial setup lag. |
Risks & Constraints
| Risk | Context |
|---|---|
| AI Uncertainty | Large enterprise clients in emerging markets are deferring decisions to re-evaluate traditional tech stacks against evolving Generative AI capabilities. |
| High Base Effect | Challenging YoY comparisons as Q3 and Q4 of the previous fiscal were record-high license revenue quarters (₹90cr+ vs current ₹70cr run rate). |
| Labor Code Impact | A one-time ₹35 crore impact on PAT due to changes in the Indian labor code affects short-term bottom-line reporting. |
Q&A Highlights
Deal Momentum and Revenue Lag
- Question: Why hasn’t strong deal momentum translated into immediate revenue growth? (Rahul Jain)
- Answer: Growth is coming from SaaS-heavy regions (US/UK/Australia) where revenue is realized over time rather than upfront. Implementation revenue also typically lags order signing by one quarter due to cloud setup and milestone structures (Virender Jeet).
AI Disruption and Strategy
- Question: Is AI lowering entry barriers and threatening traditional BPM workflows? (Srinivasu K)
- Answer: While AI/Agentic workflows disrupt departmental tasks, Newgen’s forte is complex, integration-heavy, rule-driven systems. AI will “augment” rather than replace these core infrastructures, allowing Newgen to charge higher premiums for faster time-to-market (Virender Jeet).
Margin Sustainability
- Question: How are margins holding up despite slower growth? (Aditi Patil)
- Answer: Enhanced operating leverage from AI-led engineering, flat headcount, and a higher mix of high-margin annuity revenue (AMC/Subscription) have sustained margins (Virender Jeet).
Regional Softness
- Question: Why is the Middle East declining despite eased travel? (Mihir Manohar)
- Answer: License revenue in the Middle East declined 15-20% YoY in 9M FY26. While logo counts remain steady, the lack of large “mega” license deals—often due to Board-level re-evaluations—is the primary bottleneck (Virender Jeet).
Key Takeaway
Newgen reported a measured Q3 FY26 with 5% revenue growth, navigating a transition period where robust 29% subscription growth in mature markets like the US (+21% YoY) was offset by softened license sales in India and EMEA. Total 9M FY26 revenue stood at ₹1,122 crores, with annuity streams now comprising over 60% of the mix. Management highlighted that while the deal pipeline is substantial, large-scale enterprise decisions are currently elongated as clients re-calibrate their digital roadmaps for Generative AI. Strategically, the company is leveraging AI internally to maintain flat headcount and sustain 22.5% adjusted net margins. Looking ahead, Newgen remains focused on a license recovery in Q4 and scaling its next-gen AI-first vertical solutions, though short-term volatility in traditional markets and a high year-ago base remain key watch points.
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