New Delhi based IT firm Newgen Software Technologies’ Initial Public Offer (IPO) to raise up to Rs 424 crore opens for subscription today. While investors may be mulling whether to subscribe to the issue, we take a look at four key details, and what brokerages have to say about the issue.
New Delhi based IT firm Newgen Software Technologies’ Initial Public Offer (IPO) to raise up to Rs 424 crore opens for subscription today. Newgen Software Technologies said that it raised around Rs 127.39 crore by selling shares to institutional investors as part of its anchor book allocation, ahead of its IPO. Shares were allocated to nine investors at Rs 245 per share, the upper end of the price band of Rs 240-245 for the Newgen Software Technologies IPO. Institutional investors that participated in the anchor book allocation include Goldman Sachs India, HDFC Trustee Co Ltd, Forefront Alternative Investment Trust, Aditya Birla Sun Life, BNP Paribas Arbitrage and SBI Mutual Fund, among others.
Founded in 1992, the company is involved in manufacturing of products that facilitate development of software applications. The company sells its products to banks, insurance firms, BPOs and healthcare organisations. While investors may be mulling whether to subscribe to the issue, we take a look at four key details, and what brokerages have to say about the issue.
The company has set a price band of Rs 240-245 for the issue, and looks to raise upto Rs 424 crore at the higher end of the band. The issue would constitute fresh issue worth of Rs 95 crore and offer for sale worth of Rs 330 crore (at upper band). The company will dilute 5.6 per cent of its post-offer paid-up equity share capital. Newgen Software Technologies IPO will remain open for subscription from 16th January to 18th January 2018. The lot size is fixed at 61 shares and in multiples of 61 shares thereafter. The shares will list on both BSE and NSE. The objectives of the IPO for the Company are to purchase and furnish office premises near Noida-Greater Noida Expressway, Uttar Pradesh and general corporate purposes.
About the company
Founded in 1992, Newgen Software Technologies Limited (NSTL) is a New Delhi based IT company and a provider of Business Process Management (BPM), Enterprise Content Management (ECM), Customer Communication Management (CCM), Document Management System (DMS), Workflow and Process Automation. The company has more than 450 active customers, with clients spread over 60 countries. The company sells its products to banks, insurance firms, BPOs and healthcare organizations. It has offices in the US, Canada, the United Kingdom, Singapore, and Dubai.
Angel Broking notes that NSTL was able to report only single digit bottom-line CAGR of ~8% despite a top-line CAGR ~20% over FY13-17, due to lack of stability in operating margins (b) During 1HFY18, the company has reported very low margin and profitability (c) working capital days are very high. Further, the firm says that the company may be subject to intellectual property infringement claims by other companies which could materially increase costs & harm company’s ability to generate future revenue & profits. Angel Broking also noted that increase in competition from other player can impact the business of company.
Pointing to the strengths of the company, Angel Broking says that Newgen Software Technologies has a diversified business across several verticals including Banking, Government/PSUs, BPO/IT, Insurance and Healthcare (b) Diversified revenue streams from multiple geographies with low customer concentration (c) Recurring and non-recurring repeat revenues from long standing customer relationships (d) Focused on driving innovation through in-house R&D.
Outlook and valuation
“In terms of valuations, the pre-issue P/E works out to 274x its 1HFY2018 annualized earnings (at the upper end of the issue price band), which is higher compared to its peers like Intellect Design Arena (trading at PE 143x – 1HFY2018 annualized earnings). Further last four years historical financial records and 1HFY18 doesn’t provides confidence. Hence, we recommend Neutral rating on the issue,” noted Angel Broking.
(First published on 15-01-2017 at www.financialexpress.com)