Mumbai: The initial public offering (IPO) of Newgen Software Technologies Ltd will open for subscription on Tuesday with a price band of Rs240-245 per share. The share sale that will end on 18 January aims to raise Rs400 crore. This is the second initial share sale in 2018 after the IPO of Apollo Micro Systems Ltd, which was subscribed 246 times.
Analysts are divided about the valuations of Newgen Software Technologies. Emkay Global Financial Services Ltd believes that the issue price is attractively priced at an expected price to earnings (PE) multiple of 26 times and 22 times on FY18 and FY19 earnings, respectively. It said that the high PE is justified as it would command high-growth premium and strong potential of improved profitability going forward.
According to Emkay, Newgen has a strong business positioning in growing enterprise content management (ECM) and business process management (BPM) space and would be able to continue its revenue growth traction in the coming period driven by expanding market presence, strong new client additions and mining opportunities in terms of more process/product opportunity from existing customers.
However, Angel Broking Pvt. Ltd said that in terms of valuations, the pre-issue PE works out to 274 times its first half of FY2018 annualized earnings which is higher compared to its peers like Intellect Design Arena (trading at 143 times first half of FY2018 annualized earnings). “Last four years historical financial records and first half of FY18 doesn’t provides confidence,” wrote Amarjeet S. Maurya, analyst at Angel Broking, in a note on 12 January.
He said Newgen was able to report only single-digit bottom-line compounded annual growth rate (CAGR) of 8% despite a top-line CAGR 20% over FY13-17, due to lack of stability in operating margins. Other negatives, Maurya pointed out, are its low margin and profitability reported in first half of FY18, while its working capital days are also very high.
It has reported a CAGR of 20.7% and 9.1% revenue and net profit, respectively, over FY2013-2017.
Proceeds of the issue will be used to purchase and furnish office premises near Noida-Greater Noida Expressway and for general corporate purposes. It has already raised around Rs127.39 crore by selling shares to institutional investors as part of its anchor book allocation.
Newgen Software Technologies is a New Delhi-based software company and a global provider of BPM, ECM, customer communication management (CCM), document management system (DMS), workflow and process automation. It has over 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.
Few of its clients include Trust Company of America, Mercantil Bank, ICICI Bank, United Arab Bank, Axis Bank, Yes Bank, Kotak Mahindra Bank, ICICI Prudential Life Insurance, Reliance General Insurance, Max Life Insurance and Shriram Transport Finance.livemint