Newgen Software IPO – Should you Invest?

Newgen Software IPO - Should you Invest-minNewgen Software IPO – Should you Invest?


New Delhi based, Newgen Software IPO would open for subscription on 16th January, 2018. Newgen Software IPO Ltd is one of the leading Software Products Company in India. Its revenues grew at 41% CAGR in last 5 years. However, its profits on declining mode. What are the positive factors in Newgen Software IPO? Are there any hidden factors in Newgen Software Ltd IPO?  What is the Newgen Software IPO Price? If you are planning to subscribe to this IPO, one should read the complete article. In this article, I would provide some interesting insights and do Newgen Software IPO Review.

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About Newgen Software Technologies Ltd


They are a software products company offering a platform that enables organizations to rapidly develop powerful applications addressing their strategic business needs. Company mainly offers products in ECM and BPM space. The applications created on its platform enable organizations to drive digital transformation and competitive differentiation. This may include automation of routine business functions making them faster, easier and more accurate and increasing the channels or devices through which these functions can be performed.

Issue details of Newgen Software IPO


Newgen Software IPO open date: 16-Jan-2018

Newgen Software IPO close date: 18-Jan-2018

Face Value: Rs 10 per share

Issue price band: Rs 240 to Rs 245 per share

Issue size: Rs 424 Crores+

Newgen Software IPO Lot size: 61 shares and in multiples of 61 shares there-of.

Minimum investment: Rs 14,945 on lower price band

Leading Managers: ICICI Securities, Jefferies India and IDFC Bank

Listing: NSE / BSE

Download Newgen Software IPO RHP Prospectus at this link

Objects of the Newgen Software Technologies Ltd IPO issue


Here are the objectives of the issue.

1) Offer for Sale

The Offer includes an Offer for Sale of 13,453,932 Equity Shares by the Selling Shareholders. Company will not receive any proceeds from the Offer for Sale by the Selling Shareholders.

2. Fresh Issue

The objects for which the Net Proceeds of the Fresh Issue will be utilized for:

a) Purchase and furnishing of office premises near Noida-Greater Noida Expressway, Uttar Pradesh; and

b) General corporate purpose

Company Financials (reinstated-consolidated)


1) The company generated revenue of Rs 205.5 Crores for the year ended Mar-13 and Rs 433.7 Crores for the year ended Mar-17.

2) The company posted a profit of Rs 36.9 Crores for the year ended Mar-15 and profit of Rs 52.3 Crores for the year ended Mar-17.

3) Its restated basic EPS for FY ending Mar-17 is Rs 8.65 and last 3 years EPS was Rs 10.56.

Newgen Software Technologies IPO - Consolidated Financial Summary-min

Company Financials (reinstated-Standalone)


1) The company generated revenue of Rs 194.6 Crores for the year ended Mar-13 and Rs 389.7 Crores for the year ended Mar-17.

2) The company posted a profit of Rs 36.1 Crores for the year ended Mar-15 and profit of Rs 50.1 Crores for the year ended Mar-17.

3) Its restated basic EPS for FY ending Mar-17 is Rs 8.23 and last 3 years EPS was Rs 10.11.

Newgen Software Technologies IPO - Standalone Financial Summary-min

What are Newgen Software Technologies Key Strengths?


Here are Newgen Software Technologies strengths.

1) Software product company with industry analyst recognition.

2) Diversified business across several verticals Diversified revenue streams from multiple geographies with low customer concentration.

3) Recurring and non-recurring, repeat revenues from long standing customer relationships.

4) Focused on driving innovation through in-house R&D Experienced senior management team ably supported by a qualified talent pool of employees Profitable track record.

5) Strong balance sheet and stable cash flows

Also Read: How to save income tax u/s 80C and Beyond now

What are its Key Strategies?


Company is focusing on few key strategies.

1) Expand its business and geographical footprint.

2) Focus on attractive verticals in select mature markets.

3) Expand its product portfolio through investment in advanced features and technologies.

4) Expand and grow its strategic business applications to new verticals.

5) Attract, develop and retain highly-skilled employees.

Reasons to invest in Newgen Software IPO


1) Company revenues grew at 41% CAGR in last 5 years.

2) Focus in ECM and BPM Spaces making this as niche player in this area.

Reasons not to invest in a Newgen Software IPO


1) Profits are in declining mode. It earned 18% margins in FY13 and declined to 12% in FY2017. For 6 months ended Sep-17, it further declined to 2.8%. Software /Product Software companies in India would continue to be under margin pressure. Investors should invest in consistent profit making companies.

2) Failure to protect its intellectual property could harm its ability to compete effectively.

3) They may be subject to intellectual property infringement claims by other companies which could materially increase costs and materially harm its ability to generate future revenues and profits.

4) They face intense competition. If they are unable to compete effectively, the results of operations and prospects for its business could be harmed.

5) Its success depends upon its ability to develop new products and services and enhance its existing products and services. If its software products and services do not gain market acceptance, its operating results may be negatively affected.

6) Product development is a long, expensive and uncertain process and its current expenditure in research and development may not provide a sufficient or timely return. 

7) Its cloud strategy, including its Software as a Service (SaaS) offerings, may impact its revenues and profitability from its existing and future on-premise enterprise software offerings.

8) The business practices of its customers with respect to the collection, use and management of personal information could give rise to operational interruption, liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

9) Any IT system failures or lapses on part of any of its employees may lead to operational interruption, liabilities or reputational harm.

10) The length of its sales cycle may fluctuate significantly and depends on several external factors which may result in significant fluctuations in revenues being recognized on a quarterly basis.

11) Its international sales and operations subject us to additional risks that can adversely affect its results of operations.

12) If its security measures are compromised, its products and services would be perceived as vulnerable, its brand and reputation would be damaged, the IT services they provide to its customers could be disrupted, and customers could stop using its products and services, all of which would materially adversely affect us.

13) Other risk factors (Internal and external) can be viewed in the draft prospectus.

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Recommendation / Investment strategy – Newgen Software IPO


1) On the upper price band of Rs 245 and on consolidated FY17 EPS of Rs 8.65, P/E ratio works out to 28.3x. Even based on last 3 years consolidated EPS of Rs 10.56, P/E ratio works out to 23.2x. Even on standalone EPS basis, the P/E ratio is 29.7x to 24.2x. Means, company is asking higher price band of Rs 245 in the P/E ratio of 24.2x to 29.7x. There are no listed peers to compare in similar business (Software Products business); hence P/E ratio cannot be compared. However, if we compare with Top Software companies in India (which is in the range of 16 to 28), the P/E ratio is on the higher side.

2) Company revenues grew at 41% CAGR in last 5 years. However, its profits are on the declining mode. Its issue price is also highly priced. Considering all these negative factors, I would like to stay away from such IPOs. If these are available at discounted prices later on, I may review it again for investment purpose.

Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.

Readers, what do you say about this IPO? Do you feel our analysis is good? If so, give me FB Like / Twitter Share.

Suresh

Newgen Software IPO – Should you Invest

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