| Newgen Software Technologies Limited | ||||
| Rating reaffirmed at 'Crisil A1'; Rated amount enhanced for Bank Debt | ||||
| Rating Action | ||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||
| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has reaffirmed its ‘Crisil A1’ rating on the short-term bank facilities of Newgen Software Technologies Limited (Newgen; part of the Newgen group).
The rating continues to reflect the strong business and financial risk profiles of the group, with compound annual growth rate of 24% in revenue in the three fiscals through 2025, driven by continuous in-house research and development (R&D), new service offerings, penetration into new geographies and regular addition of customers as well as increase in order flow from existing customers. Operating income grew to Rs 1,486.88 crore in fiscal 2025 from Rs 1,244 crore in fiscal 2024, driven by longstanding relationships with clients (75-80% of revenue in fiscal 2025 came from existing customers while 25-20% was from new clients). The company has 87 customers with billing of more than Rs 50 million in fiscal 2025, against 38 customers in fiscal 2022. Focus on larger customers with bigger orders, continuous development and innovation in products and increasing overseas sales in new geographies will lead to revenue growth over the medium term. Earnings before interest, tax, depreciation and amortisation (Ebitda) remained healthy at Rs 376.21 crore due to improving revenue and addition of new customers. Operating margin also improved to 25.30% in fiscal 2025 from 23.53% previous fiscal due to ramp up in operations that led to higher absorption of fixed costs. The Ebitda margin is expected to remain healthy at around 24% over the medium term due to better absorption of fixed cost.
Networth was strong at Rs 1,507 crore as on March 31, 2025, against Rs 1,220 crore previous fiscal. Total outside liabilities to tangible networth (TOLTNW) ratio is expected below 0.50 time over the medium term, in line with past trend. The group does not have any major capital expenditure (capex) plans over the medium term and thus, the financial risk profile will likely remain stable.
The rating continues to reflect the group’s sound market position, well-established clientele, geographical diversification in revenue and healthy product diversity with regular investment in R&D, and improvement in the financial risk profile. These strengths are partially offset by large fixed costs, susceptibility to employee attrition, working capital-intensive operations and exposure to fluctuations in foreign exchange (forex) rates. |
Analytical Approach Crisil Ratings has combined the business and financial risk profiles of Newgen and its 100% subsidiaries: Newgen Software Inc, Newgen Software Technologies Canada Ltd , Newgen Software technologies Pte Ltd, Newgen Software Technologies UK Ltd, Newgen Software Technologies Pty Ltd, Newgen Computer Technologies Ltd, Newgen Software Technologies LLC and Newgen Software Technologies Company Ltd. This is because all these entities, collectively referred to as the Newgen group, operate in the same industry and have operational and financial linkages.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths: Established market position and strong clientele: The group has a strong market position and longstanding relationships with customers. The promoters’ experience of over four decades in the internet software services industry and sound understanding of market dynamics, particularly in product and enterprise services, will continue to support the business. Healthy relationships with customers result in repeat orders from the US and Europe markets. The group has longstanding relationships with more than 500 customers in 77 countries across various sectors. Its customers include established players in various industries such as banks, insurance firms, business process outsourcing and healthcare.
Geographical diversification in revenue: The group has strong presence in 77 countries in fiscal 2025. The top 10 customers contributed 24% to the revenue in fiscal 2025, while export accounted for 69%. Diversity in geographical reach and clientele should continue to support the business risk profile over the medium term.
Improving operating efficiency driven by investment in R&D and heathy product mix: The group has a diversified product basket with multiple services and product offerings, thereby mitigating the risk of technological obsolescence in a segment. The group is an established player in the market with over three decades of experience. Revenue and profitability improved to Rs 1,486 crore and 25.30%, respectively, in fiscal 2025, while return on capital employed was heathy at 30.25% against 27.20% in fiscal 2024. With continuous addition of new customers and increasing business from existing clients, the revenue and profitability are expected to grow at a healthy pace over the medium term.
Strengthening of the financial risk profile: Capital structure has been continuously improving due to modest reliance on external debt, yielding TOLTNW ratio of less than 0.5 time in the four fiscals ended March 31, 2025. In the absence of any major debt funded capex plans, capital structure is expected to remain comfortable due to negligible reliance on external capital and healthy accretion to reserve. Debt protection metrics were healthy, as reflected in interest coverage ratio of 78.84 times in fiscal 2025.
Weaknesses: High fixed costs and susceptibility to employee attrition: The group has a high proportion of fixed overheads (employee cost and rentals), making it susceptible to the quantum of work received, and subsequently, the level of billing. Variation in operating margin depends on the duration, ticket size and nature of contracts awarded. Operations are also susceptible to employee attrition, although the group has maintained a low rate over the past few years by rewarding its employees with yearly increment and performance incentives. However, with increasing revenue, the absorption of employee cost has increased, leading to improved profitability in fiscal 2025.
Working capital-intensive operations: Gross current assets (GCAs) were sizeable at 303 days as on March 31, 2025, driven by receivables of 137 days, with considerable receivables outstanding for more than six months. This is because of the long implementation phase and delayed payments from customers. The collection cycle is expected to remain stable over the medium term. However, higher GCAs are also due to the cash and liquid funds maintained by the company.
Vulnerability to fluctuations in forex rates: As majority of revenue comes from the international market, any sharp fluctuation in forex rates affects realisation and cash accrual. Operating margin also remains exposed to fluctuations in forex rates. |
Liquidity: Strong Liquidity will remain supported by the surplus in cash accrual, bank limit and liquid reserve. In the absence of debt obligation, expected cash accrual of over Rs 320 crore per annum over the medium term will support liquidity. Bank limit utilisation averaged 35.47% for the 12 months, which is primarily non-fund based in nature, through March 2025. Current ratio was healthy at 3.44 times as on March 31, 2025, and cash and bank balance as well as investments in liquid funds were Rs 924 crore as on March 2025. Strong gearing and moderate networth support financial flexibility. |
Rating sensitivity factors Upward factors:
Downward factors:
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About the Group Incorporated in 1992 and promoted by Mr Diwakar Nigam and Mr T S Varadarajan, Newgen is an information technology (IT) product company that provides solutions in enterprise content management, business process management and customer communications management. Its customers are organisations belonging to the banking, telecommunications and insurance sectors. |
Key Financial Indicators
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Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||
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Criteria Details
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