Buy This Small Cap IT Enabled Services Stock For 24% Gains, Share Price Grown 1.5x Since Listing

ICICI Securities in its recent report on Newgen Software Technologies, published on 24th June 2022, has recommended investors buy the stocks of the company for a target price of Rs 440 per share. Newgen is a low code application development platform company. Company's annuity-based revenues (SaaS + ATS/AMC + Support) comprises 59% of revenue mix while license & others form 20.7% revenue mix each. Vertical wise BFSI comprises 66% of the revenue mix while the geographical split has been largely equal between India, US, EMEA & APAC.

Stock Outlook

The current market price (CMP) of the Newgen Software Technologies is Rs 355.30 per share. The stock's CMP is Rs 31.75 above the 52-week low of 323.75 per share, which the stock hit last week on 21 June 2022. Its 52-week high is Rs 755 recorded on 5 June 2021.

According to the ICICI Securities' estimated target price of Rs 440 and the CMP, the stock has the potential to gain close to 24% in 12 months period.

Key triggers for future price performance

1. Strong logo addition and increasing annuity mix (recurring business) from existing clients would aid revenue growth as we baked in 17.2% CAGR revenue growth over FY22-24. We expect the company to return to the historical 70-80 logo additions/year as travel opens up. This coupled with subscription (SaaS + ATS/AMC) growth of 31% CAGR over FY22-24 is expected to drive annuity (SaaS + ATS/AMC+Support) revenues, which are expected to grow at 21.8% CAGR in the same period and forms 63% of the revenue mix.
2. The company is working on 70-80 cases as far as GSI opportunity is concerned. Depending on the scenario analysis we did, it has an incremental revenue opportunity of Rs 79-131 crore in the next two years over and above its normal revenue run rate.
3. Strong focus on R&D investments to stay competitive. Newgen now has 23 patent grants across India and US out of 43 patents filed so far. Its R&D team has grown to about 580 employees in FY22 (vs ~250 in FY18) and R&D investments as a percentage of sales is 10.2% in FY22 vs. 7.2% in FY18. The company also acquired recently 'Number Theory' to strengthen its platform with AI/ML modelling and data analytics capability.

Buy for the Target price of Rs 440 per share

Newgen's share price has grown 1.5x since listing in January 2018. The brokerage said. "We initiate coverage under Stock Tales format with a BUY rating and a target price of Rs 440. We value Newgen at 14x FY24 EPS to arrive at a target price of Rs 440 per share."

About - Newgen Software Technologies Ltd

Incorporated in 1992, Newgen Software Technologies is a global software company and is engaged in the business of software product development including designing and delivering end-to-end software solutions covering the entire spectrum of software services from workflow automation to Document management to imaging. 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). 

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.