CRISIL said that the rating reflects strong business and financial risk profiles of the company with continued growth of 15-20% in last three fiscals ending FY23 driven by continuous in-house research and development (R&D), new service offerings, penetration in new geographies and regular addition of customers.

Operating income grew to Rs. 974 crores in FY23 from Rs. 779 crores in FY22 driven by long standing relationship with clients (about 70-80% of the revenue in fiscal 2023 was through existing customers while 20-30% was from new clients).

Focus on larger customers with bigger deal size, continuous development and innovation in product, increasing overseas sales in new geographies would lead to further revenue growth over the medium term.

The earnings before interest, tax, depreciation and amortisation (EBITDA) margin remained healthy and stable at Rs. 212 crore despite the increase in employee cost and marketing expenses. EBITDA margin is expected to remain healthy in the medium term.

Networth stood strong at Rs 974 crore as on 31 March 2023, compared with Rs 808 crore a year earlier. The total outside liabilities to tangible networth (TOLTNW) ratio is expected to remain below 0.50 time over the medium term, in line with past trends. The company has not planned any major capital expenditure (capex) over the medium term, and thus, financial risk profile is expected to remain stable.

The rating continues to reflect the sound market position of the group, its well-established customer base, geographical diversification in revenue and healthy product diversity with regular investment in R&D, and an improvement in the financial risk profile. These strengths are partially offset by the group's large fixed cost base and susceptibility to employee attrition, working capital intensive operations with sizeable more than six months' debtors and exposure to fluctuations in foreign exchange (forex) rates.

Newgen Software Technologies is an information technology (IT) product company, which provides solutions in enterprise content management, business process management and customer communications management platforms. These platforms help clients digitise and manage content and document flow process. The major customers of the company are organisations belonging to sectors such as banking, telecom and insurance.