Newgen Software

[Varsh]

Newgen Software Technologies Pte. Ltd. (wholly owned subsidiary of the Company incorporated in Singapore) has received an intent from a customer to engage aforesaid subsidiary for the Knowledge and Records Management System (KRMS). The aggregate value of the aforesaid project purchase order is SGD 17,47,298/- (Rs.109455289.69).
Time of execution 4.5 years

Newgen Software Inc. (NSI), incorporated in the USA, the material Subsidiary of Newgen Software Technologies Limited (“the Company”) has executed a Scope of work with a Banking Client for Digital Account Opening, Retail Loans, ECM & Collection Upgrade. The aggregate value of the aforesaid Scope of Work is USD 1,829,019.
Duration of contact 2 years.

Newgen Software Technologies Limited (“the Company”) has accepted the Award Letter from the customer for the Provision of Credit Automation services. The aggregate value of the aforesaid Award is USD 1,643,256 inclusive taxes.
The time period by which the order (s)/contract(s) is to be executed 5 years

Newgen Software Technologies Limited (“the Company”) has received and accepted the Purchase Order from a customer for the Newgen Remittance system- License cost. The value of the aforesaid purchase order is INR 208,978,000.00/-(inclusive of applicable taxes)
Time period by which order to be executed 1 year

Disc :- invested

[chikspat]

[

High Valuation was concerned at 40PE in Oct 2023, Where I reflected as above. Still situation is same, valuation is high, growth may continue for coming time.
Individual has to follow own framework for exit/booking profits.
D: Invested.

[subhadeep_kundu]

Good company ,Good future ahead , Good growth rate but 85-90 PE and 88 price to cash flow is testing patience.

[Mohanlate]

“Expectations Investing” by Michael Mauboussin in which he refers to a famous paper called “What does PE multiple mean” by Modigliani and Miller suggests a “Price Implied Expectations (PIE)” model of valuation where

Value of Firm = Steady State value + Future State value.

Steady state value assumes that current level of NOPAT will be sustainable indefinitely and that incremental investments neither add or destroy value. It’s very much like terminal value calculation in DCF model.

Steady State Value = (NOPAT / Cost of Capital) + Cash - Debt

I did some calculations last week based on this to understand market expections built into the current price -

The inputs based on March 24 figs:

1. NOPAT (Ebit (1-t)) is 241 Cr.
2. I have assumed CoC of 12%.
3. Cash is 250 Crs
4. Debt is around 41 Crs.

Using above figs and using the formula above, Steady State Value will be 2,214 Cr.

Future State Value refers to how much company invests, the spread between ROIC and CoC and for how long the company can find investible value creating opportunities or the competitive advantage period.

Future value creation = Investment * (return on capital – cost of capital) * competitive advantage period / Cost of capital * (1 + cost of capital)

Here, the inputs are (based on March 24 figs):

1. Invested capital (Fixed Assets + Capital WIP – Dep + WC) = 796 Crs.
2. RoIC (Ebit/Invested capital)(1-t) = 30% (tax adjusted)
3. Competitive advantage period = 15 years (Given the large opportunity size and long runway for growth for Newgen, let’s say the market assumes a 15yrs of growth before decline to a phase where reinvestment earns no more than CoC.)

Using above formula and inputs, future state value comes to around 16,213 Cr.

Total value = 18,428 Cr.

Value per share = 18,428 Cr / No. of outstanding shares i.e. 14 Cr = 1314

The current market price is 1585. Clearly the stock is overvalued leaving absolutely no space of any margin of safety.

So the market is clearly betting on their ability to successfully build ecosystem to capture major GIS that will help them tap into the Fortune 2000 and large banks (for their platform sales, and increase the contribution of revenue from GIS from the current 5% to 30%. Market seems to trust in the management’s ambition targeting of reaching $500M in 5 years growing at CAGR of 27%.

Also, market thinks they can maintain their rate of acquiring 50-60 new logos each year and increase portion of Annuity based revenue from Saas, etc.

Big bets! Stock already up 120% in one year.

[Abhishek_Kumar2]

High pE can sustain if the growth will be intact. And the stock price will also be maintained supported by only eps growth if further PE rerating doesn’t happen.

[Rajesh_kumar_Singh]

Newgen software Q3 results will be coming tomorrow. The growth and management commentry will decide whether the present high PE will sustain or not?.
Expecting total revenue: around 420 crores
PBT: around 105 crores .
PAT will depend upon tax brackets.

[Varsh]

results Q3 fy25

ab5984da-5e22-4bcc-976f-69efc1bc28af.pdf

ad8cf754-1525-4f4b-8b0c-f1b8f5963038.pdf

[Rajesh_kumar_Singh]

PBT and PAT is above expectations despite of revenue little below expected line. This is because of margin expansion which is mainly due to excellent growth of licence sales. That is the power a product company. This licence sale is repetitive in nature.
As per management commentry, deal execution cycle has increased due to complexity of the level of order of previous year which ultimately affected revenue in execution part collection. So, once these are executed, there is scope of AMC and service revenue in addition licence revenue. 90 percent contribution of recent orders will come in FY26.
They still believe to achieve 500 million dollar revenue in 3-4 years.
Source: Concall of Q3 FY25
Disclosure: Invested

[Hemant_Kumar2]

I am not much into conspiracy theory but cant stop wondering if 12% move on 15th January on a bad market day wasn’t a trap by insiders to build pre-result hype and get out. Stock has been sliding since every single day with high volumes and now 20% corrected.

[LarryWink]

@amitvohra
Amit, wasn’t your comment about the results and the CMP cracking if they aren’t blockbuster? I swear I saw it somewhere but can’t recall it perfectly—maybe my memory’s playing hide and seek! Seriously though, why would anyone flag that post?

I get it, VP is a super positive zone, and any slightly negative comment is like pineapple on pizza—not everyone’s favorite. But hey, as long as it’s not throwing false numbers or random accusations, why should it be flagged, right?

@chikspat @Mohanlate
Quoting Mohanlate’s math wizardry:
Value per share = ₹18,428 Cr / 14 Cr shares = ₹1,314.

Are we already there? Markets are like my Wi-Fi signal—extremely unpredictable! I’m confident in Newgen’s growth story but waiting for a comfy reentry point. Maybe around the next big order or quarterly results? (Exited at 3x ~₹1,600, planning my comeback.)

@Hemant_Kumar2
Quoting Hemant’s inner detective:
“Was that 12% move on Jan 15th in a bad market day just an insider trap to hype pre-results?”

Honestly, it did seem fishy. Like it or not, I believe insiders always leave their fingerprints on pre-results price action. Whether we spot them or not is another story! …

[Hemant_Kumar2]

It’s a peculiarity of every bull market that we take high p/e as a given for high growth stocks, forgetting that it’s not fundamental alone that drives the valuations but also the excess liquidity.

When liquidity starts drying up, valuations also shrink regardless of how good fundamentals are. That said, it’s very hard to determine what should be right p/e based on purely fundamentals sans generous liquidity and that’s where margin of safety matters a lot.

A world class company like Nvidia, growing and expected to grow at the same rate, trading at p/e of 50, is considered expensive. But I guess our market is unique.

I believe market has sent enough signals in the last few quarters that liquidity in the small and mid cap space is slowly receding. So like I have been doing for the last 6 months, in various threads, sticking my neck out, I’d continue to caution against staying bullish in the zone of overvaluation.

[mahesh_mishra]

This stock fell from 1750 to 1350 ( down by 13% on today’s session) . Does it have a potential to return back to its highs of 1750 and become a multi-bagger in future.

[Abhishek_Kumar2]

A single day fall has risen doubt on its becoming multibagger in future.

[Mohanlate]

Here’s a summary of the key points from the New Gen Software Technologies Limited Q3 FY25 analyst conference call:

• Company Performance: New Gen had a consistent quarter with an 18% year-over-year (YOY) revenue growth, reaching 381 crore rupees . The APAC region showed the highest growth at 43% YOY, followed by EMIA at 19%, the US at 13%, and India at 10% .

• License Sales: There was a substantial increase in license sales during the quarter with a 70% YOY growth . License growth has been significant across all regions, with larger deals coming from India, APAC, and the Middle East . The license growth for the year has been healthy, almost at 40% .

• Deal Wins:

• New Gen secured a significant order from the Reserve Bank of India (RBI) for implementing and maintaining a regulatory application management system, valued at 32 crore rupees .

• They also entered into an agreement with I financial limited for a loan origination solution valued at 24 crore rupees .

• In Saudi Arabia, they secured a 2.3 million USD agreement with a power generation company .

• They are providing a knowledge and records management system to a customer in Singapore for 1.7 million SGD .

• In the US, they are working with a banking client on digital account opening, retail loans, ECM, and collection upgrades for 1.8 billion USD .

• New Gen entered a contract in EMIA for providing a digital lending and onboarding platform for 2 million USD .

• They are providing credit automation services to a leading banking and financial services company in Africa for 1.6 million USD .

• In total, they added 15 new logos in Q3 and 36 new logos over the past 9 months .

• Execution Cycles: While deal velocity has been good, projects now have longer execution cycles due to the complexities they are handling . Implementation cycles are moving beyond one year for some larger projects . This impacts not only implementation revenue but also the annuity revenue streams .

• Verticals: Banking and financial services remain the core vertical, with increasing traction in the government segment .

• They are focusing on the insurance and healthcare markets, winning new deals in mature markets .

• They are offering solutions in the payers, providers, pharmacy, and life sciences areas of healthcare .

• Technology and Innovation: New Gen’s low-code platform is a key strength, automating business applications and customer journeys in the banking and financial services sector .

• They have launched an AI-enabled captive finance solution .

• They are heavily investing in building internal capabilities on their product and solutions along with new technology areas like AI, gen AI, and machine learning .

• AI is transforming from a tool of automation to a partner in intelligent decision-making .

• Recognition: The company was recognized as a niche player in the Gartner’s magic quadrant for enterprise low-code application platforms for the fifth consecutive time . They were also recognized in Forrester’s low-code platform for professional developers landscape . New Gen was recognized as a leader in the IDC market space report for intelligent customer communications management and automated document generation and customer communication management . They have also been certified as a great place to work in India in December .

• Financials: Profit after tax was 89 crore rupees for the quarter, a 30% YOY growth .

• For the 9-month period, revenues were 1055.7 crore rupees (22% growth) and profit after tax was 207 crore rupees (41% growth) .

• R&D expenses were 9% of revenues, and sales and marketing expenses were 22% .

• Net trade receivables were at 463 crore rupees as of December 31, with a net DSO of 118 days .

• Margins: The company is seeing margin expansion due to strong growth above their budgeted costs. Profit growth for the 9-month period is around 40% . There is an expectation that Q4 margins will be slightly better . The company’s aim is to maintain around 20% of net margin and 23% .

• Market Trends: There may be a slight slowdown in the overall momentum of digital lending projects, but new-generation NBFCs are investing to gain market share .

• The company is hopeful that the US banking space is picking up, and they anticipate winning banking deals in the US in the coming quarters .

• Future Outlook: New Gen will continue to focus on new deals and expanding relationships with existing customers .

• They are focusing on India and the Middle East for growth .

• They are investing in building capabilities and new technology areas like AI and machine learning .

• They are aiming for a revenue of 500 million dollars in the next 3-4 years, with mature markets being key to reaching this goal .

• India Business: While there was a wave of lending which started in India with modernizing platforms, there has been a slight slowdown in the overall momentum of digital lending projects . New generation NBFCs are investing to gain market share, and while order sizes from larger accounts may be smaller, the numbers are larger . There has been a slowdown in revenue realization from India because of longer execution cycles . The company has seen more short-term orders in India with shorter implementation cycles compared to the previous year’s multi-year, large account bookings .

• Insurance Segment: New Gen is focusing on insurance, selling journeys similar to banking, but more around claims and underwriting both in life and non-life as well as the health payers and providers segment in the US . They are finding strong traction in ECM and CCM in insurance . The company is anticipating closing 2-3 insurance deals this quarter . Insurance deals may have smaller initial sizes but open up a large number of tier one accounts .

• Talent: The company is continuously looking to augment good talent, especially in AI, and does not expect it to be a bottleneck for growth.

• Implementation Challenges: The company acknowledges that the implementation is complex because they are implementing transformative solutions . There are learning and discovery processes involved with the customer . Implementation challenges can lead to delays but they also believe that the value delivered is substantial

• Customer Revenue: Approximately 80-85% of revenue comes from existing clients .

• License Revenue: License revenue is booked in the same quarter when licenses are delivered and customer acceptance is received .

• New Logos: New Gen added 15 new logos in Q3. Over the 9-month period, the company has added 36 new logos

[Arka]

Newgen Software | Management Interview

Company said revenue was delayed due to execution challenges in large deals with PSU banks

One of largest quarters for licenses sales (up 70% YoY)

Mid-term challenges are expected from annuity revenues

Aim to recover annuity rev growth by 2-3% each qtr until it aligns with co’s growth rates

We aim to maintain steady EBITDA margin of 23-24% and net margin of 20%

Revenue was delayed due to execution challenges in large deals with PSU banks. Mid-term challenges are expected from annuity revenues

Watch the interview here - https://youtu.be/gYdGOIN5kYw

[Mohanlate]

Why I am buying NewGen at 1200?

Here’s a breakdown of the positive and negative takeaways from Newgen’s recent quarterly performance.

Positive Takeaways:

• Strong Revenue Growth: Revenues reached ₹381 crores, representing an 18% YoY growth. For the 9-month period, revenue growth was 22% YoY.
• Profitability: Strong growth in profits and expanded margins. PAT grew by 30%. For the 9-month period, PAT grew by 41%. This is a clear indication that Newgen is not only growing its revenue, but is also becoming more profitable.
• Strong License Sales: There has been a substantial increase in license sales. In Q3 FY’25, license sales were up by 70% YoY. The company has a strong win momentum in the market which is driving this growth.
• APAC Region Growth: The APAC region has shown exceptional growth, with a 43% YoY revenue increase in Q3 FY’25 and 65% AOI in Q1 FY’25. This indicates a strong market presence and successful sales strategies in this region.
• New Logo Acquisitions: Newgen continues to acquire new clients, adding 15 new logos in Q3 FY’25 and 36 new logos over the 9-month period. The company also added 51 new logos in FY24. These new clients are crucial for sustaining growth and revenue diversification. This is inline with their guidance of acquiring 50-60 logos a year.
• Cross-selling and Upselling: The company has experienced increased traction in cross-selling to existing customers. This indicates a strong relationship with its existing client base and potential for further revenue growth from these accounts. The company relies on 50% of its growth coming from upselling to existing accounts.
• AI and Innovation Focus: Newgen is focused on innovation in AI and low-code platforms. The launch of LumYn, a Gen AI powered hyper-personalization platform for the banking sector, is a significant step towards staying competitive and offering new solutions. The company is leveraging its expertise in data science and AI to win deals.
• Strategic Deals: Newgen has closed several significant deals across various regions and sectors, including with RBI and a large power generation company in Saudi Arabia. These deals demonstrate the company’s ability to win large contracts across various industries.
• Strong Partnerships: The company’s relationships with clients are good, which is contributing to consistent growth.
• Market Recognition: Newgen has received recognition from Gartner, Forrester, and IDC, as a leader in their respective markets.
• Employee Satisfaction: The company has been certified as a Great Place to Work in India.

Negative Takeaways:

• Slight Slowdown in India: The momentum of digital lending projects in India has experienced a slight slowdown, which could impact future growth in this key market. There is a change in the dynamics of the accounts being acquired, with a shift from larger tier-one accounts to tier-two accounts and NBFCs, which have lower deal sizes.
• Longer Execution Cycles: Projects now have longer execution cycles due to the level of complexities, with implementation cycles moving beyond one year for some large projects. This can lead to delays in revenue recognition.
• Impact on Annuity Revenue Growth: The shift towards larger deals with longer implementation cycles has led to a slight softening of the annuity-based revenue growth, with it falling below 20% after 10 quarters. The company has seen a bit of a muted growth in the ATS (Annual Technical Support) revenue, which is a part of annuity revenue.
• US Market Progress: While Newgen is making inroads with larger clients in the US, the deal velocity is slow, and it is taking time to gain momentum in this mature market. The business is still relying heavily on emerging markets, and US is still a work in progress with 21% of total revenue coming from it.
• DSO: The company’s net DSO (Days Sales Outstanding) remains relatively high, at 118 days in Q3 FY’25, indicating a potential for improvement in collection efficiency. Target is to get to 105.
• Banking Sector: While the banking sector is still strong, there have been some changes in the dynamics of this market, including slower deposit growth.

So they are performing well, with strong growth in revenue, profitability, and new client acquisitions. The company is strategically positioning itself for long-term growth. However, there are some concerns about the longer execution cycles, the slight slowdown in India, and the relatively slower progress in the US market.

Despite these challenges, the company appears to be on a stable growth path. The management is aware of the challenges, and they are working to address them. The company is still confident in maintaining a healthy growth rate of 20% for a long period of time.

Technically, the stock is 3% away from 200DMA. Per my calculations above, if we reduce the market implied period or the competitive advantage period from 15 yrs to 12 years (considering the recent developments), value comes to 1330. I.e. ~12% upside and decent margin of safety. This gives a good R/R for entry in a fundamentally strong stock with long term structural tailwinds.

Disclaimer: Invested and biased.

[Varsh]

Newgen Software receives USD 3 million orders in insurance sector. Duration of contact 5 years

[chikspat]

Newgen’s recent sell of is copy book action by market. If growth slows, stock get hammered. I have selling rule for this, but not act. Emotions! Association Bias.
500$ million guideline in next 3/4 years is anchoring, if one needs to really hold for long term.
Next quarter suppose to be strongest, usually Q4. Company have long runway of growth 20% +, have longevity of growth, it is not commodity player.
I can sell anytime if better opportunity comes or I ACT on my selling frame work.

D: Invested

[kabirmulji]

One should avoid high eps and high price to book value stocks at salty times in economy

[Hemant_Kumar2]

Stock has corrected by 40% despite good numbers and nothing being wrong with company’s growth. This is how market corrects exorbitant valuations finding some excuse (e.g. Trump, budget etc)
At 50 p/e stock is still expensive but at least valuations don’t hurt the eyes. I will start adding more if it comes to 1000.