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Hidden Gem - Newgen Software

ICICIdirect Research 18 Oct 2024 DISCLAIMER

Newgen is a low code application development platform company. It is an established player in the market of enterprise content management (ECM), business process management (BPM) & customer communications management (CCM).

Annuity based revenues (SaaS + ATS/AMC + Support) comprise 60% of the revenue mix while Software & Implementation form 40% of the revenue mix

Vertical wise, Banking comprises 72% of revenue mix while geographical break-up has been largely equal between India, EMEA, APAC & US

Strong medium term growth Aspirations: The management highlighted that the company is investing aggressively to achieve the aspirational $500mn dollar revenue in the next 3-4 years, implying a CAGR of 36% over the next 4 years i.e., FY24-FY28.

Sustained revenue growth, with stable margins: We expect strong revenue growth momentum to continue in H2FY25, owing to tailwinds from the digital cycle and strong traction in customer onboarding, SME lending, supply chain finance, payment hub and trade finance. We believe the company’s revenue will grow at CAGR of 23.8% between FY24-27E to ₹ 2358 crore, vs. CAGR of 14.9% between FY19-24. We also bake stable EBITDA margin of 24.7%/24.2/24.2% in FY25/26/27, respectively.

We expect EPS growth of ~22.9% over FY24-27 on the back of a healthy deal pipeline and robust growth strategy to be a key catalyst for its long-term growth. We value it at target price of ₹ 1,465; at 50x P/E on average of FY26E and FY27E EPS.

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