Newgen Software IPO Opens Today: All You Need To Know
Newgen Software Technologies Ltd.’s three-day initial public offering opens today as investors look to exit the software services provider.
The company aims to raise close to Rs 425 crore by offering 1.73 crore shares at Rs 240-245 apiece. Four private investors—IDG Ventures, Ascent Capital, Pandara Trust and SAP V—are almost exiting the company by making at least 2.7 times their investment. The IPO comprises a fresh issue of Rs 95 crore, which the company will use to buy and furnish a new office.
Newgen Software Technologies is a software services provider that offers enterprise content management, business process management and customer communication management solutions across verticals. It has over 450 active customers in over 60 countries.
The company caters to banks like Trust Company of America, Mercantile Bank, ICICI Bank Ltd., Axis Bank Ltd., Yes Bank Ltd., Kotak Mahindra Bank Ltd. that contribute nearly 48 percent of the revenue.
Client concentration is low with its top 5/10/20 accounts contributing 14/23/35 percent of revenues in the year to March. The company earns revenue from multiple streams, with annuity-based products contributing half the revenue.
Customer relationships are sticky and the customers continue to upgrade on newer versions of the product and thus keep continuing to add to annuity revenue streams.
- Newgen Software’s net worth stood at Rs 272 crore for the half year ended September 2017, translating into a book value per share of Rs 39.
- Its revenue clocked a compounded annual growth rate of 17.7 percent and net profit rose at 6.3 percent in three years to March 2017. Newgen was able to report only single-digit profit growth due to lack of stability in operating margins.
- Newgen’s revenue and net profit for the half year ended September 2017 stood at Rs 207 crore and Rs 6 crore, respectively.
- The working capital cycle for the company stood at 189 days for the year ended 2017. That’s because it takes nearly 205 days on an average to receive dues from clients.
Peers And Valuations
Newgen competes with listed peer Intellect Design Arena Ltd., which provides software products to banking, financial services and insurance sector. Intellect was demerged from Polaris Consulting and Services Ltd. in 2014.
Newgen’s revenue grew at a slower rate compared to Intellect; but Intellect has been reporting losses in three years to March 2017.
Newgen didn’t have any long-term borrowings as of Sept. 30.
Newgen’s return ratios are better compared to Intellect Design on an annualised basis for the year ending March.
Earnings per share on an annualised basis for financial year ending March works out to Rs 1.69. At the upper end of the price band, its priced at 145 times its earnings, according to BloombergQuint’s calculations.
After the share sale by private investors, the promoter holding will fall to 66.3 percent from 70.3 percent.
Brokerages were divided on the initial public offering.
- Valuations are higher compared to its peer
- Financial records of the last four years and the first half of the year ending March don’t provide confidence
- Recommend ‘Neutral’ rating
- Newgen has strong business positioning and would be able to continue its revenue growth in coming period
- The issue price is attractively priced
- The high PE is justified as it would command high-growth premium and a strong potential of improved profitability
- Recommend ‘Subscribe’