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Newgen Software Technologies
CM RATING40/100
Newgen Software Technologies offers a platform to enable organizations to drive digital transformation of business processes such as automation of routine business functions, making them faster, easier and more accurate and increasing the channels or devices through which these functions can be performed.

The platform comprises Enterprise Content Management (ECM) allowing digitization of enterprise content and information. The platform provides smart tools for enterprises to capture and extract information from various sources, classify, store, archive or retrieve as well as dispose off any content and documents required in day-to-day business operations. It provides the flexibility to access or deliver content over mobile and cloud creating a highly connected and digital workplace. It offers a robust US DoD 5015.02-STD certified Records Management System to ensure compliance with regulatory requirements in relation to management of records.

Business Process Management (BPM)is an integrated system which allows enterprises to manage a complete range of business processes, including designing and modeling flow of work, executing the flow of work through the workflow engine and monitoring the flow of work for future improvement. OmniFlow iBPS also offers dynamic case management capabilities which allow decision-makers to respond to real time opportunities, challenges and other unanticipated situations while maintaining a high level of collaboration.

Customer Communication Management (CCM) offers a unified communication platform that allows enterprises to improve communication with their customers by delivering a personalized, targeted and consistent communication through various channels.

Being built on the same technology architecture, these suites are well-integrated and offer customers ease of implementation and use.

The company's business has multiple revenue streams including from, one-time upfront license fees in relation to the platform deployed on-premise, recurring fees/charges from the following, subscription fees for licenses in relation to platform deployed on cloud, charges for annual technical support and maintenance (including updates) of licences and installation, charges for support and development services, and milestone-based charges for implementation and development, and charges for scanning services

The Top 5 sectors it caters to are banking, government PSUs, BPO/IT, insurance and healthcare. The banking and insurance industries are heavily regulated, with banks having to implement their customer requirements by keeping detailed records of every interaction with customers. In addition, the ability to function in a real-time manner and always-on environment will be a high priority, as it has been in the retail banking sector for some time.

Its go-to-market strategy consists of direct sales supplemented by sales through channel partners. Its direct sales are made by Company in India and Subsidiaries located in USA, UK, Singapore and Canada, through sales and marketing teams, which, as of June 30, 2017 comprised 265 employees.

As of September 2017, the company has more than 300 channel partners globally.

The company sells its software through licenses and subscriptions and intends to grow revenue both by adding new customers and by increasing the number of users at existing customer organisations.

As of September 2017, it had over 450 active customers (invoiced in the last 12 months) in over 60 countries. Some of its key active customers include Trust Company of America, Mercantil Bank, ICICI Bank, Trafigura, Bajaj Electricals, United Arab Bank, National Commercial Bank Jamaica, Axis Bank, Yes Bank, Kotak Mahindra Bank, Bank Islam Brunei Darussalam, Philippines Resource Saving Bank, ICICI Prudential Life Insurance, Reliance General Insurance, Max Life Insurance, Strides Shasun and Shriram Transport Finance. Its enterprise-wide, mission-critical solutions have been used by some of the leading global businesses in various sectors including banking, government/PSUs, BPO/IT, insurance and healthcare.

The company has expanded its addressable market by developing solution frameworks in key verticals including banking, government/PSU, BPO/IT and healthcare.

India, EMEA and USA have traditionally been the largest contributors to its revenues, contributing 39.62%, 27.28% and 26.05% of total revenue from operations in FY 2017

The Offer and the Objects

The offer comprises of fresh Issue of up to Rs 95 crore by the company, which at lower price band of Rs 240 per share, works out to 39.58 lakh equity shares and at higher price band of Rs 245, the issue size works out to 38.77 lakh equity shares. Apart from this, the offer for sale consists of up to 13,453,932 equity shares or around Rs 329.62 crore. Thus the total issue size is Rs 424.62 crore.

The minimum bid lot is 61 equity shares and in multiples of 61 equity shares. The issue is made through the book-building process and will open on 16 January and will close on 18 January.

The objects of the issue are to purchase and furnishing of office premises near Noida-Greater Noida Expressway, Uttar Pradesh to the tune of Rs 8.43 crore; and general corporate purposes.

Strengths

The company is been recognized by Gartner, the world's leading information technology research and advisory company. According to these Gartner researches, Newgen is the only vendor positioned in all four magic quadrants of ECM, IBPMS, BPM-platform based case management framework and CCM.

The three spaces of the technology market that it operates in enterprise content management, business process management and customer communication management are all growing globally at a rate of 7%-10%, while the rest of the technology space is growing at a much slower rate of around 3%. Within India these three areas are expected to grow at more than double of the global growth expectation and 40% of the company's business comes from India.

The company is making investments in the USA which will help it get a bigger share of the US market, the biggest globally for ECM, BPM and CCM. The US currently contributes 26% of the company's revenue.

The company possesses multi-vertical industry expertise and target a broad spectrum of services in business and product offerings. It has long-standing relationships with customers, which include 17 Global Fortune 500 companies. In fiscals 2015, 2016 and 2017, revenue from repeat customers was 76.68%, 81.51% and 72.18% of revenues, respectively.

Digitization is gaining momentum and the company is well placed to avail of the growth opportunities.

The company has seen its revenue grow at a compound annual growth rate of 19% over FY2013-FY2017

Historically, it has witnessed low customer concentration. In FY 2017, top five, top 10 and top 20 customers contributed only 13.99%, 22.78% and 35.42% of total revenues, respectively.

The company has four patents registered in India and 27 outstanding patent applications in India and one outstanding patent application in the USA. The company has registered a total of 10 trademarks in India

Weaknesses

The development of products is a costly, complex and time-consuming process, and the investment in their development often involves a long wait until a return is achieved on such an investment. Thus, product business has a long gestation period and leads to volatility in earnings.

Not all products developed is a success and the company faces monetary loss involved in developing the products and loss of man hours if the product does not succeed and may adversely affect the company's financial performance.

The markets for its software products and services are intensely competitive and are subject to rapid technological change. The company competes with both single product large vendors as well as vendors who are present across more than one product suite.

Its cloud strategy, including software as a service offerings, may impact its revenues and

profit from existing and future on-premise enterprise software offerings

Valuation

Net sales increased 22% to Rs 383.12 crore and the operating profit margins were up 510 basis points to 17.4% in FY 2017. Net profit jumped 81% to Rs 50.16 crore. However net profit had fallen 35% from Rs 42.80 crore to Rs 27.65 crore in FY 2016. The OPM had fallen continuously from 23.2% in FY2013 to 12.3% in FY 2016 but recovered to 17.4% in FY 2017.

Net sales stood at Rs 182.78 crore and the OPM at 4.9% in the six months ended September 2047. Net profit stood at Rs 5.65 crore. Due to seasonality in business, profits cannot be annualized.

At the upper band of Rs 245, P/E works out to 33.9 times EPS of Rs 7.2 (on post-IPO equity) for FY 2017. There are no listed entities in India which are similar to its line of business and comparable to its scale of operations.

Newgen Software Technologies: Issue highlights
Fresh shares offer size (in Rs crore)95
Price Band (Rs)240-245
No. of fresh shares on offer at Rs 240 per share(crore)0.40
No. of fresh shares on offer at Rs 245 per share (crore)0.39
Offer for share sales (Number of shares)13453,932
Offer for share sales size at Rs 240 per share (in Rs crore)322.89
Offer for share sales size at Rs 245 per share (in Rs crore)329.62
Total issue size (Rs crore)417-424.62
Minimum Bid Lot ( in number of shares)61
Post issue equity at Rs 240 per share(Rs crore)69.32
Post issue equity at Rs 245 per share(Rs crore)69.24
Post-issue promoter and promoter group stake at Rs 245 per share (%)66.26%
Post-issue promoter and promoter group stake at Rs 250 per share (%)66.34%
Issue open date16/01/2018
Issue close date18/01/2018
ListingNSE & BSE
Rating40/100


Newgen Software Technologies: Financials

1303 (12)1403 (12)1503 (12)1603 (12)1703 (12) &1709 (6)
Sales190.30233.60278.52312.81383.12182.78
OPM (%)23.220.519.312.317.44.9
OP44.2147.8153.7238.6066.788.93
Other inc.4.3937.727.802.666.662.86
PBIDT48.6055.5361.5241.2673.4411.79
Interest1.2181.482.143.434.261.90
PBDT47.3854.0459.3937.8369.189.89
Dep.3.7283.454.304.324.742.72
PBT43.6650.6055.0933.5264.447.18
EO0.000.000.000.000.000.00
PBT after EO43.6650.6055.0933.5264.447.18
Total Tax7.518.5912.295.8614.291.53
PAT36.1542.0142.8027.6550.165.65
EPS (Rs) *5.26.16.24.07.2#
EPS (Rs) **5.26.16.24.07.2#
* on post-issue Equity of Rs 69.32 crore; Face value Rs 10 (issue price Rs 240)
** on post-issue Equity of Rs 69.24 crore; Face value Rs 10 (issue price Rs 245)
EPS excludes EO (extra ordinary items) and relevant tax
#EPS can not be annualized due to seasonality in business
Figures in crore
Source: Capitaline Databases

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