Indian Accounting Research Analyst, Trudence Capital Advisors

Nitin Mangal

Indian Accounting Research Analyst

Forensic Accounting

Newgen Software Technologies / Forensic Accounting

<a href="https://www.smartkarma.com/entities/newgen-software-technologies" target="_blank" data-smartkarma-citation="entities:26704:1" rel="noopener">Newgen Software Technologies (NEWGEN IN)</a> financials after it became public almost 20 months ago indicates a disconnect between revenue model and receivable ageing. Change in assumption for expected credit loss could not curtail provisioning for receivables. Further, an increase in other income for F19 was a one-off phenomenon backed by higher interest on un-utilized proceeds parked in bank fixed deposits and higher foreign exchange gain. Also, during Q2F20 the company has reported a loss in its India segment, which constituted 28% of the top-line.

Newgen Software Technologies (NEWGEN IN) financials after it became public almost 20 months ago indicates a disconnect between revenue model and receivable ageing. Change in assumption for expected credit loss could not curtail provisioning for receivables. Further, an increase in other income for F19 was a one-off phenomenon backed by higher interest on un-utilized proceeds parked in bank fixed deposits and higher foreign exchange gain. Also, during Q2F20 the company has reported a loss in its India segment, which constituted 28% of the top-line.

Equity Capital Markets

Newgen Software Technologies / Equity Capital Markets

Newgen Software Technologies Limited (Newgen) is a software products company with the diversified revenue stream and lower concentration of clients. Higher marketing spends coupled with a high focus on research and development, the company's revenue grew by 20.7% CAGR over the period of last five years. As operating efficiency of the company was not being of the desired level, profit margin continued to decline despite the fact that the company is backed by reputed PE investors and shown a decent revenue growth.Newgen is floating an initial public offer (IPO) with the size of ~INR 4,178 mn (USD 65.9 mn) to ~INR 4,246 mn (USD 66.9 mn) and eyeing implied market capitalization post listing in the rage of INR 16.2 bn (USD 255.8 mn) to INR 16.5 bn (USD 260.8 mn).  The PE investors are exiting their entire holding of 13.5 mn shares in the company and remaining fund up to INR 950 mn will be utilized for purchase and furnishing of office premises and general corporate purpose.There are few issues highlighted in the detailed report as wells as the impact of adoption of Ind-AS should not be ignored while making a decision for investing in the IPO of the company.It is not clear to us, why the company has made an application for obtaining trademark registration with respect to "Newgen Payments Bank". <h2>Valuation</h2>On July 8, 2014, Private equity investor has ascribed an estimated valuation of 2.4x price to sales and 14.7x price to EPS  based on the restated financial statement of F14. If we apply CAGR growth rate to F18 revenue and similar profit margin (restated ) as reported in F17, then IPO is priced in the range of 3.1x to 3.2x price to sales and 25.7x to 26.2x price to earnings (P/E), despite the fact that net income margin has come down to 12.3% in F18E as compared to 16.5% in F14.<div class="content-remarks">*(1 USD = INR 63.4)</div>

Newgen Software Technologies Limited (Newgen) is a software products company with the diversified revenue stream and lower concentration of clients. Higher marketing spends coupled with a high focus on research and development, the company's revenue grew by 20.7% CAGR over the period of last five years. As operating efficiency of the company was not being of the desired level, profit margin continued to decline despite the fact that the company is backed by reputed PE investors and shown a decent revenue growth.Newgen is floating an initial public offer (IPO) with the size of ~INR 4,178 mn (USD 65.9 mn) to ~INR 4,246 mn (USD 66.9 mn) and eyeing implied market capitalization post listing in the rage of INR 16.2 bn (USD 255.8 mn) to INR 16.5 bn (USD 260.8 mn).  The PE investors are exiting their entire holding of 13.5 mn shares in the company and remaining fund up to INR 950 mn will be utilized for purchase and furnishing of office premises and general corporate purpose.There are few issues highlighted in the detailed report as wells as the impact of adoption of Ind-AS should not be ignored while making a decision for investing in the IPO of the company.It is not clear to us, why the company has made an application for obtaining trademark registration with respect to "Newgen Payments Bank". ValuationOn July 8, 2014, Private equity investor has ascribed an estimated valuation of 2.4x price to sales and 14.7x price to EPS  based on the restated financial statement of F14. If we apply CAGR growth rate to F18 revenue and similar profit margin (restated ) as reported in F17, then IPO is priced in the range of 3.1x to 3.2x price to sales and 25.7x to 26.2x price to earnings (P/E), despite the fact that net income margin has come down to 12.3% in F18E as compared to 16.5% in F14.*(1 USD = INR 63.4)

Newgen Software: Issues Not To Be Overlooked

India

Newgen Software Technologies Limited provides IT services. The Company offers software development, document management system, workflow and process automation, business process, enterprise content, and customer communication management services. Newgen Software Technologies serves customers worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Newgen Software Technologies (NEWGEN IN)

Newgen Software: Error Code Flashing

Newgen Software Technologies (NEWGEN IN) financials after it became public almost 20 months ago indicates a disconnect between revenue model and...

Nitin Mangal

Newgen Software: Issues Not To Be Overlooked

Newgen Software Technologies Limited (Newgen) is a software products company with the diversified revenue stream and lower concentration of...

Nitin Mangal

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)