Despite the large-cap IT stocks ending Friday's trading session in deep red, shares of Newgen Software, a small-cap IT stock stood out as they rallied 5.26% during the trade to touch a new historic high of ₹844.9 apiece. The stock has been on an impressive winning streak for the last eight trading sessions, consistently setting new record highs.
During this period, the shares skyrocketed from ₹619 apiece to ₹829.50, delivering a substantial return of 34%. This significant increase in the stock price can be attributed to the company's robust performance in the June-ending quarter.
Over the past year, Newgen Software shares have delivered a multi-bagger return of 130%. Looking at the long term, it has delivered an impressive return of 374% in three years.
Newgen is a low-code application development platform company. It is an established player in the market of enterprise content management (ECM), business process management (BPM), and customer communications management (CCM).
During Q1FY24, the company reported robust performance, surpassing the brokerages' expectations in revenue, EBITDA, and PAT, with broad-based demand across geographies, particularly in the banking and insurance verticals.
During the quarter, Newgen witnessed robust YoY revenue growth of 34%, reaching ₹252 crore, even in a seasonally weak quarter. This growth was driven by a significant rise in license revenue, up 184.6% YoY, and annuity revenue, which rose by 26.3% YoY.
The company exhibited strong growth across all markets, with India growing by 24.5% YoY, EMEA by 38.4% YoY, APAC by 45.7% YoY, and the US by 35.8% YoY. The EBITDA margin stood at 12.8%, witnessing a YoY increase of 251%, mainly driven by a higher gross margin due to a greater mix of license and annuity sales.
With a surge of 57% YoY, the Profit after Tax reached ₹30 crore. Despite an exceptional 34% YoY growth in Q1FY24, the company maintained its revenue growth guidance of 20–25% YoY for FY24.
This is essentially because Q1FY24’s revenue is typically only 20% of total revenue, and it benefited from higher growth (184.6% YoY) in license sales, which may not repeat in subsequent quarters, said brokerage firm ICICI Securities.
The brokerage noted that Newgen is experiencing strong traction and bookings from both existing and new customers, with no demand weakness observed in its markets, such as India, EMEA, and APAC. During Q1, Newgen added 13 new logos, and the demand remains robust in the banking, insurance, and government verticals, it added.
In the US, the banking sector is under cost pressure, especially, the smaller end of mid-sized banks. Newgen expects higher growth in the US market in FY24 vs. FY23 due to the low base in FY23. Plus, its strategy of pivoting to larger banks in the US is yielding good results, and Newgen’s solutions are also helping banks to streamline their operational costs, it highlighted.
Following the robust financial performance, domestic brokerage firm ICICI Securities raised its EPS estimates by 10%, 7%, and 8% for FY25E, FY26E, and FY27E, respectively. As a result, the brokerage now expects a 26% EPS CAGR for Newgen over FY23–26E. The brokerage continued with its 'buy' rating on the stock with a target price of ₹859 apiece.
03 analysts polled by MintGenie on average have a 'strongbuy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.