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Review By Dilip Davda on January 10, 2018

Newgen Software Technologies Ltd. (NSTL) is a software products company offering a platform that enables organizations to rapidly develop powerful applications addressing their strategic business needs. The applications created on NSTL’s platform enable organizations to drive digital transformation and competitive differentiation. This may include 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 .Its customers use the platform to rapidly design, build and implement enterprise-grade custom applications through its intuitive, visual interface with minimal coding. NSTL’s platform comprises of – 1. Enterprise Content Management (ECM) - 2. Business Process Management (BPM) and - 3. Customer Communication Management (CCM). All these platforms are intermingled and thus, with this product, NSTL provides solutions under one roof to its customers with tailor made programmes. Company’s business has multiple revenue streams including from sale of software products, annuity based revenues, and sale of services. Besides India Headquarter, company has subsidiaries in USA, UK, Canada and Singapore and has over 300 channel partners globally. As on 30.09.17 NSTL had 450 active customers in 60 countries. Some of its customers are Trust Company of America, Mercantile Bank, ICICI Bank, Bajaj Electricals, Axis Bank, Yes Bank, ICICI Prudential Life, Reliance General Insurance, Stride Shasun, Shriram Transport Finance and others. Its 4 patents are registered and has applied for another 34 patents.

To part finance its plans for purchase of office premises with its furnishings in Noida and general corpus fund needs, NSTL is coming out with a maiden IPO of approx 17331483 equity shares (based on upper price band) of Rs. 10 each via book building route with a price band of Rs. 240-245 to mobilize Rs. 415.96 – Rs/ 426.62 crore (based on lower and upper price bands). Issue consists of fresh equity issue worth Rs. 95 crore and offer for sale of 13453932 shares. Issue opens for subscription on 16.01.18 and will close on 18.01.18. Minimum application is to be made for 61 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE/NSE. BRLMs to this issue are ICICI Securities Ltd., Jefferies India Pvt. Ltd. and IDFC Bank Ltd. Karvy Computershare Pvt. Ltd. is the registrar to the issue. Issue constitutes 25% of its post issue paid up equity capital. Having issued initial equity from 1992 to 1996 at par, it raised further equity in the price range of Rs. 49.27 to Rs. 589.98 between October 1997 and September 2017. It has also issued bonus shares in the ratio of 2 for 1 in October 1997, 2 for 1 in March 2000 and 5 for 1 in September 2014. Average cost of acquisition of shares by the promoters is Rs. 0.76 and Rs. 1.02 per share. Post issue NSTL’s current paid up equity capital of Rs. 65.36 crore will stand enhanced to Rs. 69.24 crore.

On performance front, NSTL has (on a consolidated basis) posted turnover/net profits of Rs. 255.17 cr. / Rs. 41.08 cr. (FY14), Rs. 316.21 cr. / Rs. 46.38 cr. (FY15), Rs. 349.67 cr. / Rs. 27.82 cr. (FY16) and Rs. 433.77 cr. / Rs. 52.36 cr. (FY17). It suffered setback in bottom line for FY16 due to higher spending on R&D for new software. For first half of the current fiscal, it has reported net profit of Rs. 5.84 crore on a turnover of Rs. 209.95 crore. According to management, based on last five fiscal’s financial performance pattern, first half always contributes around 40% of revenues and balance comes in the second half with higher margins due to year end spending of customers. For last five years it has reported CAGR of 21% in top lines. Its ECM, BPM and CCM verticals are expected to grow at a CAGR of 7.1%, 8.4% and 10% respectively by 2021. Its R&D spending has increased by over 50% in last three fiscals (up from Rs. 20.4 crore to Rs. 31.3 crore). For last three fiscals, it has posted an average EPS of Rs. 8.15 and average RoNW of 17.23% on an equity base of Rs. 63.38 crore. Issue is priced at a P/BV of 5.74 based on its NAV of Rs. 42.67 as on 30.09.17. Considering its financial performance patterns for second half for last five years, annualizing of latest working will not give clear picture. Based on last three fiscal’s average EPS of Rs. 8.15 asking price is at a P/E of 30 plus and based on FY17 EPS of Rs. 10.53, asking price is at a P/E of 23.27. Based on average 12% plus margin for last four fiscals and annualized turnover with second half growth pattern its asking price is at a P/E of around 27. It has no listed peers to compare with.

On BRLM’s front, 3 BRLMs associated with this offer have handled 36 public issues in past three financial years out of which 11 public issues closed below the issue price on listing date.

Conclusion: Although issue appears fully priced, considering niche play of the company and first mover in the defined segment, investment may be considered for long term. (Subscribe)

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