Newgen Software Q3 Profit Hit by Labour Code, Stock Tumbles 9%

Introduction

Shares of Newgen Software Ltd. plunged over 9% on Tuesday, January 20, after the company announced its financial results for the third quarter ended December 2025. The sharp decline in stock price was driven by a significant drop in net profit and stagnant revenue growth, which overshadowed improvements in operational margins. The company attributed the decline in profitability to a one-time charge related to the implementation of a new labour code.

Financial Performance Under Pressure

For the third quarter, Newgen Software reported a consolidated net profit of ₹63 crore, a steep 23.2% decline from the ₹82 crore profit recorded in the preceding quarter (July-September 2025). The company clarified that this fall was primarily due to a one-time provision of ₹35 crore to comply with the new labour code. According to the management, if this exceptional item were excluded, the company's bottom line would have shown sequential growth.

The company's revenue from operations remained flat, coming in at ₹400 crore for the quarter, nearly unchanged from the ₹401 crore reported in the previous quarter. This lack of topline growth was a key factor in the negative investor sentiment that followed the earnings release.

Operational Metrics Show Resilience

Despite the challenges in revenue and net profit, Newgen Software demonstrated some underlying operational strength. The company's Earnings Before Interest and Tax (EBIT) saw a growth of 3.1%, increasing to ₹97 crore from ₹94.4 crore in the September quarter. Furthermore, the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin expanded by 70 basis points, rising to 24.2% from 23.5% in the previous quarter. This indicates a degree of efficiency in managing operational costs, even as revenue growth stalled.

Geographical Revenue Breakdown

A closer look at the company's geographical performance reveals a mixed picture. The India business, a significant market for Newgen, experienced a decline in revenue, falling to ₹115.4 crore from ₹117.8 crore in the prior quarter. The Europe, Middle East, and Africa (EMEA) region also saw its topline remain flat at ₹123.6 crore.

On a more positive note, there was modest growth in other international markets. Revenue from the Asia-Pacific (APAC) region increased slightly to ₹65.32 crore from ₹63.45 crore. The US business also registered a small increase, with revenue growing to ₹96 crore from ₹95 crore in the September quarter. This suggests that while domestic and EMEA markets faced headwinds, the company found some traction in the US and APAC regions.

Key Financial Metrics (Q3 FY26 vs Q2 FY26)

Market Reaction and Stock Performance

The market reacted swiftly and negatively to the earnings announcement. Newgen Software's stock fell as much as 9% during intraday trading on January 20. By the end of the session, the shares were trading 8.5% lower at ₹672.8. This single-day drop adds to a challenging period for the stock, which has fallen approximately 57% over the last 12 months. The weak quarterly performance has amplified investor concerns about the company's growth trajectory in the near term.

Analysis of the Results

The Q3 results present a challenging scenario for Newgen Software. The stagnant revenue is a primary concern, indicating potential difficulties in securing new business or delays in project execution. While the company's explanation of the one-time charge for the profit decline is valid, the market often reacts to headline numbers, and a 23% drop is significant. The resilience in operating margins is a positive takeaway, suggesting that the company's core operations remain efficient. However, sustained margin expansion is difficult without corresponding revenue growth. The market's harsh reaction reflects broader concerns about whether the company can reignite its growth engine in the coming quarters.

Conclusion

Newgen Software's third-quarter performance was a mixed bag, with operational efficiencies being overshadowed by flat revenue and a sharp, albeit explained, drop in net profit. The one-time impact of the labour code provides important context, but the lack of topline growth remains a significant headwind. Investors will be closely watching the company's performance in the next few quarters for signs of a return to robust revenue growth and improved profitability.