Newgen Software Technologies: Outlook of 38% revenue CAGR for FY22-27 at a PE of 38
The pace of top-line growth at NEWGEN has increased from FY22 into H1-24. 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, and communication management 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 Q1-24: PAT up 57% & Revenue up 34% YoY
Newgen witnessed continuing growth momentum with revenue growth of 34% Q1 YoY and growth in Profit after Tax at 57%Q1 YoY
Historically, the business has been seasonal in nature with Q1 being the leanest quarter.
4. Strong Q2-24: PAT up 59% & Revenue up 30% YoY
Newgen witnessed continuing growth momentum with revenue growth of 30% Q2 YoY driven by strong growth in banking and financial services across geographies.
Profit after Tax witnessed a growth of 59% Q2 YoY
5. Overall H1-24 looking strong: PAT up 57% & Revenue up 32% YoY
We continue to build upon the business momentum with four consecutive high growth quarters now.
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 32% growth in H1-24 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. Outlook of 38% revenue CAGR for FY22-27 at a PE of 38
9. So Wait and Watch
If I hold the stock then one may continue holding on to NEWGEN
NEWGEN has started delivering growth since FY22 and the pace is picking up with H1-24 delivering PAT growth of 57% & Revenue growth of 32% YOY which much faster than the FY23 growth (25% revenue and 7% PAT)
Along with the top-line growth we are seeing margin expansion.
Since the past record of NEWGEN has not been extraordinary 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
11. Or, join the ride
If I am looking to enter the stock then
NEWGEN has delivered a strong H1-24 with PAT growth of 57% & revenue growth of 32% YOY and is available for a PE of 38 which makes the valuations fairly valued in the short-term.
Over the longer-term NEWGEN aspires to be a $500 million and grow at CAGR of 38% over FY22-27. This makes the PE of 38 look reasonable.
The past record of NEWGEN has been of tepid growth and hence one needs to keep a watch that the organic component of growth is contributing fairly to achieve the $500 million aspiration.
At a PE of 38, 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.
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Disclaimer
It is an analysis of the company data and not a stock recommendation
My analysis can be completely wrong and can change the next minute based on changes in my understanding of the company
I look to own good companies at prices where there is a path to market beating returns over decades