Newgen Software IPO (Newgen Software Technologies IPO) intends to raise Rs. 424 crore consisting of fresh issue of Rs. 95 crores and Offer for Sale (OFS) of ~ 134.54 Lac shares. Noida based Newgen Software Technologies Ltd. is a software product company providing a platform that enables organisations to rapidly develop powerful applications and to drive digital transformation.
Newgen Software IPO Details
| Issue Period | Tue, Jan 16, 2018 – Thu, Jan 18, 2018 |
| Issue Details | Fresh Issue of Equity Shares up to Rs.95 Cr |
| + Offer for Sale of upto 13,453,932 Equity Shares | |
| Issue Size | 17,331,483 – 17,412,265 Shares ( upto Rs.424.62 Cr ) |
| Price Band | Rs.240 – 245 |
| Bid Lot | 61 Equity Shares and multiple thereof |
| Issue Structure : | |
| QIB | 50% of the offer- 8,665,741 Shares- Rs. 212.31 Cr |
| NIB | 15% of the offer -2,599,722 Shares- Rs. 63.69 Cr) |
| Retail | 35% of the offer- 6,066,019 Shares- Rs.146.26 Cr |
| Applications for 1x Retail Subscription | 99,443 |
| GCBRLMs | ICICI Securities, Jefferies India |
| BRLM | IDFC Bank |
| Registrar | Karvy Computershare Pvt. Ltd. |
About Newgen Software Technologies
- Newgen Software is a vendor/provider of Business Process Management (BPM), Enterprise Content Management (ECM), Customer Communication Management (CCM), Document Management System (DMS), Workflow and Process Automation software. The company has a global footprint in over 60 countries with large, mission-critical solutions that have been deployed in Banks, Insurance firms, BPO’s, Healthcare Organizations, Government and Telecom Companies.
- Newgen Software Technologies is a a software products company offering a platform that enables organisations to rapidly develop powerful applications addressing their strategic business needs. The applications created on its platform enable organisations to drive digital transformation and competitive differentiation. Its customers use its platform to rapidly design, build and implement enterprise-grade custom applications through its intuitive, visual interface with minimal coding. its platform comprises of:
- Enterprise Content Management (ECM): OmniDocs Enterprise Content Management Software which allows digitisation of enterprise content and the platform provides smart tools for enterprises to capture and extract information from various sources, classify, store, archive or retrieve as well as dispose of any content and documents required in day-to-day business operations.
- Business Process Management (BPM): The OmniFlow Intelligent Business Process Suite allows enterprises to manage a complete range of business processes, including designing and modelling flow of work, executing the flow of work through the workflow engine and monitoring the flow of work for future
- Customer Communication Management (CCM): The OmniOMS Customer Communication Management suite offers a unified communication platform that allows enterprises to improve communication with their customers.
- These suites can be deployed on-premise as well as on cloud. Increasingly, its customers are choosing to use its product suites on cloud on a subscription basis.
Newgen Software Technologies: Financials:
| (Rs. In Cr) | ||||
| Particulars | H1FY18 | FY17 | FY16 | FY15 |
| Revenue from Operations | 207.25 | 427.1 | 346.81 | 308.46 |
| Revenue Growth (%) | – | 23.15% | 12.43% | 24.38% |
| EBITDA | 9.62 | 70 | 39.26 | 57.81 |
| EBITDA Margin | 4.64% | 16.39% | 11.32% | 18.74% |
| Profit Before Tax | 7.66 | 67.57 | 34.24 | 59.05 |
| Net Profit | 5.84 | 52.36 | 27.82 | 46.38 |
| Net Profit Margin | 2.78% | 12.07% | 7.96% | 14.67% |
| Share Capital | 63.62 | 63.38 | 63.09 | 63.06 |
| Reserves | 207.88 | 211.34 | 166.25 | 148.32 |
| Net worth | 271.5 | 274.72 | 229.34 | 211.38 |
| RONW(%) | 2.15%^ | 19.06% | 12.13% | 21.94% |
| Net Asset Value (Rs.) | 42.67 | 43.34 | 41.49 | 38 |
| ROE (%) | 2.14% | 20.78% | 12.62% | 24.09% |
| ROCE (%) | 2.42% | 24.28% | 15.06% | 27.21% |
| EPS (Rs.) | 0.92 | 10.56 | 5.4 | 9.43 |
| IPO Price | 245 | |||
| Face Value | 10 | |||
| Post Issue Equity | 69.32 | |||
| EPS (Rs.)-Post Issue Equity | 7.55 | |||
| PE (Post issue) | 32.44 | |||
| CAGR Sales 3 Yrs | 19.87% | |||
| CAGR Net Profit 3 Yrs | 18.96% | |||
| Market Cap | 1698.34 | crore | ||
| Market cap / Sales (FY17) | 3.98 | |||
Objectives of Newgen Software IPO
To purchase and furnish office premises near Noida-Greater Noida Expressway, Uttar Pradesh
General corporate purposes
Newgen Software IPO: Rationale for Investment
- Newgen Software Technologies has multiple revenue streams which primarily include:
- Sale of software products: one-time upfront license fees in relation to the platform deployed on-premise
- Annuity based revenue: recurring fees/charges from the following
- SaaS: subscription fees for licenses in relation to platform deployed on cloud
- ATS/AMC: charges for annual technical support and maintenance (including updates) of licences, and installation
- Support: charges for support and development services
- Sale of services: milestone-based charges for implementation and development, and charges for scanning services.
- 27% of its revenue is generated through software product sales, 28% comes from implementation services, 22% from annuity based support services and 17% comes from AMC.
- Newgen Software Technologies market strategy consists of direct sales supplemented by sales through its channel partners. The direct sales are made by Company in India and its Subsidiaries located in USA, UK, Singapore and Canada, through its sales and marketing teams
- As of September 30, 2017, compnay had over 450 active customers in over 60 countries. The customers include Trust Company of America, Mercantil Bank, ICICI Bank, Trafigura, Bajaj Electricals, United Arab Bank, National Commercial Bank Jamaica, Axis Bank, Yes Bank, Kotak Mahindra Bank, Bank Islam Brunei Darussalam, Philippines Resource Saving Bank, ICICI Prudential Life Insurance, Reliance General Insurance, Max Life Insurance, Strides Shasun and Shriram Transport Finance.
- Newgen Software Technologies enterprise-wide, mission-critical solutions have been used by some of the leading global businesses in various sectors including banking, government/PSUs, BPO/IT, insurance and healthcare.
- Newgen Software Technologies platform enables organisations to drive digital transformation and competitive differentiation. According to the Ovum Report, key indicators of digitalisation reveal that the rapid pace of adoption of digital and enabling technologies is increasing across enterprises and end-users globally. Further, almost 30% of enterprises plan to make strategic investments in ECM in the next 18 months, with a further 40% planning minor investments. Over 25% of enterprises are planning strategic investment in BPM suites over the next 18-month period.
- Newgen Software Technologies has Recurring and non-recurring repeat revenues from long standing customer relationships
- Newgen Software Technologies is focused on driving innovation through in-house R&D
Risks & Concerns
- Product development is a long, expensive and uncertain process and company’s investment current expenditure in research and development may not provide a sufficient or timely return.
- Newgen Software Technologies may be subject to intellectual property infringement claims by other companies
- Company’s operating results could be adversely affected by any weakening of economic conditions.
Assessment
- The company operates in enterprise content management, business process management and customer communication management which are growing globally at a decent rate of 7%-10% Compared to overall rate of around 3% for the IT sector. Thus there is more headroom for Newgen Software Technologies to grow.
- Newgen Software Technologies puts considerable focus on inhouse R&D and The company has four patents registered in India and 27 outstanding patent applications in India and one outstanding patent application in the USA.
- The fresh issue by the company is just to purchase and furnish office premises near Noida-Greater Noida Expressway which fails to impress.
- Receivable days of company has been around or over 6 months during the past few years which is considered high.
- The four PE players who are offering shares for sale in the IPO are making an almost total exit from the company. This does not add to confidence in the company’s future.
- Even though business may be seasonal, During 1HFY18, Newgen Software Technologies has reported low margins.
- At Rs. 255 per share, Newgen Software IPO is valued at a P/E multiple of 32.44 x (to its FY17 EPS of Rs. 7.55 on Post issue diluted Share capital of 69.32 crore).
- In comparison some of the listed companies have P/E in the range of 17-23x. The industry’s P/E are in the region of around 18-26x. .
- Due to higher valuations, exit by PE investors etc, at this point of time I do not intend to apply in Newgen Software IPO even as there is a possibility that due to favorable outlook for IT sector Newgen Software IPO can give some listing gain or can turn out a reasonable performance in future. Shall keep a tab on subscription and any other info that may lead to change of opinion.
- Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.