Newgen Software Technologies: 51% PAT growth & 30% Revenue growth in 9M-24 at a PE of 55
The pace of top-line growth at NEWGEN has increased from FY22 into 9M-24. NEWGEN aspires to be $500 mn in revenue by FY27 and is on track with the organic growth while awaiting inorganic growth.
1. Enterprise software company
newgensoft.com | NSE: NEWGEN
Newgen is the leading provider of a unified digital transformation platform with native process automation, content services, communication management, and AI/ML capabilities.
2. Average FY19-23: 15% PAT & 12% Revenue CAGR
Top-line growth picked up: 21% CAGR FY21-23
PAT growth picked up: 18% CAGR FY21-23
Solid track record of free cash flow generation
3. Strong H1-24: PAT up 57% & Revenue up 32% YoY
4. Strong Q3-24: PAT up 45% & Revenue up 27% YoY
PAT up 43% & Revenue up 10% QoQ
5. Strong 9M-24: PAT up 51% & Revenue up 30% YoY
6. Strong return ratios irrespective of tepid growth historically
7. Outlook: Revenue CAGR of 38% FY22-27
i. $500 million revenue by FY27
NEWGEN is targeting growth from a top-line of around $100 million as of FY22 end to a top-line of $500 million by FY27 implying a growth of 38% CAGR for the period FY22-27.
The 25% growth in FY22 picking up to a 30% growth in 9M-24 indicates that NEWGEN is in the race to deliver 38% CAGR by FY27 with the addition of the inorganic component of growth. As a free cash flow generating company, NEWGEN has the capability to buy inorganic growth.
Acquisitions are planned for 2023 but have not yet happened.
8. PAT growth of 51% & Revenue growth of 30% in 9M-24 at a PE of 55
9. So Wait and Watch
If I hold the stock then one may continue holding on to NEWGEN
NEWGEN based on a strong performance in all the 3 quarters of FY24, looks on track to deliver the biggest top-line and bottom-line in FY24.
NEWGEN has delivered PAT growth of 51% & Revenue growth of 30% YoY in 9M-24 which is in line with the required run-rate to achieve $500 mn revenue by FY27
We can expect an equally strong quarter in Q4-24
We have grown at a growth rate of 30% for last three quarters I think Q3, Q4 are larger quarters for us and we do expect to keep our growth momentum up
Along with the top-line growth we can expect margin expansion.
Q3, Q4 is the real quarters and if we can maintain a high top line beyond our budgeted top lines then we should be able to expand better margins for this year. So, the estimates are anywhere between, 18% to 21% EBITDA and 18% PAT. If you are able to hit any growth, which is about 26%, 27%, the margin should expand.
NEWGEN has a strong record of cash generation which continues in 9M-24. On a EBITDA of Rs 168 cr, cash from operating activity is Rs 193 cr.
Net Cash from Operating activities at Rs 193 crores for the nine-month period ending December 31, 2023.
Since the past record of NEWGEN has not been extraordinary to justify a PE of 50+, one needs to keep a watch for the momentum in top-line and bottom-line. If it slows then we should be looking at exit options.
There is a potential of inorganic growth to take NEWGEN to $500 million by FY27 which provides a positive outlook to look forward to
10. Or, join the ride
If I am looking to enter the stock then
NEWGEN based on 9M-24 performance looks on track to to deliver a FY24 which is as per the required run-rate of revenue CAGR of 38% (including inorganic growth) for FY22-27. From a long term perspective 38% revenue CAGR at a PE of 55 makes the valuations quite fair.
If the momentum of around 30% top-line growth continues on to FY27 then the PE of 55 makes the valuations quite fair over the long term.
At a PE of 55, there is little room for NEWGEN to miss on its growth momentum. One or two not so good quarters may raise questions about the valuations of the stock.
Don’t like what you are reading? Let us know at hi@moneymuscle.in
Disclaimer
It is an analysis of the company data and not a stock recommendation
Perspectives may change based on evolving understanding of the company.
Focus is on identifying potential stock ideas for long-term market-beating returns.
Content does not constitute explicit stock recommendations.
Investors should conduct thorough stock research and seek professional advice.
Information is for educational purposes and not financial advice or a call to action