Newgen Software Technologies witnessed a commendable 4% surge in its share price on Monday, propelled by the positive adjustment in target price by global brokerage firm Jefferies. The shares of Newgen Software climbed by 4.16% to reach ₹1,474.00 per share on the BSE.
Jefferies, maintaining a ‘Buy’ rating on Newgen Software Technologies, elevated the target price to ₹1,740 per share, calculated at 35 times PE and implying a PEG of 1.3x, up from the previous ₹1,275.
Expressing increased confidence in Newgen’s growth trajectory, Jefferies augmented its revenue estimates by 2-3% and EPS estimates by 2-4%. The brokerage anticipates an impressive 26% EPS CAGR over FY24-26E for Newgen.
During its Annual event, Newgen Software’s management emphasized the robust growth outlook, citing recent bookings that provide assurance for FY24 growth. The primary drivers of this optimistic outlook are India and the Middle East, Newgen’s core markets, with a simultaneous expansion in the Asia-Pacific region. Management is intensifying efforts to establish a stronger presence in the US, particularly targeting mid-large tier banks.
India is currently experiencing substantial traction, witnessing a 40% increase in deal sizes over the past year. Notably, Newgen’s trade finance product secured nine large deals, indicating promising growth prospects.
Newgen’s management highlighted the potential for a 10-12 ppt expansion in gross margins once the company achieves a topline of $350 million. However, the company plans to reinvest most of the anticipated margin improvement into scaling up marketing efforts or investing in product development to accelerate growth. Jefferies expects Ebitda margin expansion to be limited in the future, projecting FY24-26 margins to hover around the 22% range.
In its base-case scenario, Jefferies anticipates Newgen to deliver a 24% CAGR in revenue growth and an EBITDA margin of 22% over FY24-26E.
Key catalysts for the stock’s performance include traction in deal wins, especially in the US, leading to higher-than-expected revenue growth, margin beats, reduced receivable/debtor days, and favorable currency movements, as highlighted by Jefferies.
As of 2:40 pm, Newgen Software Technologies shares were trading 1.20% higher at ₹1,432.00 per share on the BSE.
