Decoding the success story of a multibagger small-cap software company

In the rapidly changing world of tech and digital advancements, Newgen Software Technologies LTD has become a standout player, surprising many with its impressive performance. This article dives into the recent moves that brought Newgen into the limelight, like the bonus issue and a boosted share capital. We’ll explore their strong Q2 showing and the noteworthy recognition as a ‘Strong Performer’ in Digital Process Automation Software.

As a small-cap dark horse, this stock has astoundingly delivered a whopping 325% returns in CY2023 YTD, making it a captivating journey of growth and recognition in the IT sector.

Bonus Issue and Share Capital Increase 

The recent decision by Newgen’s Board of Directors to increase the Authorized Share Capital and recommend a Bonus Share issue in the proportion of 1:1 brings forth potential advantages for investors. The bonus issue, scheduled for January 12, 2024, offers existing shareholders one new fully paid-up equity share for every existing share held. This move not only enhances shareholder value but also showcases the company’s confidence in its future growth prospects. As the authorised share capital expands to Rs 180,10,00,000, it provides Newgen with the flexibility for future capital requirements and strategic initiatives, fortifying its financial position.

Q2FY2024 Concall Highlights 

• Demand for digital banking is booming: Across the globe, the digital banking market is heating up, and Newgen is seeing a big upswing in business.
• Deals are getting bigger: The average size of Newgen’s contracts has jumped by 30-40% year-over-year, showing deeper penetration in the banking industry, particularly through their digital lending platform.
• Revenue is growing everywhere: Newgen’s sales are rising in India, Europe, the Middle East, and even the Americas. It’s a global party!
• Order book is overflowing: Newgen’s backlog of orders is growing even faster than their revenue, meaning tons of future income is already secured. Expect H1 growth to skyrocket compared to last year!
• Big things brewing in the US: Management expects the real growth spurt to come from the US in the next couple of years. They’ve been investing heavily in restructuring and reorganization there, and it’s about to pay off.
• Profitability outlook is solid: Newgen’s earnings before interest, taxes, depreciation, and amortization (EBITDA) and net income are estimated to grow between 18% and 21%. Not bad!
• Banking is ripe for disruption: Traditional banks are feeling the pressure, but emerging markets are embracing digital transformation, especially in lending. Newgen sees a massive opportunity here and is confident they can capitalize on it for years to come.
• Competition is limited: Newgen faces relatively few rivals in the digital banking space, giving them a big advantage. There’s plenty of room to grow!
• Investing for the future: Newgen is expanding its sales team and marketing budget to grab an even bigger slice of the pie. They’re also working on lowering their Days Sales Outstanding (DSO), meaning they’re collecting payments faster, another good sign for financial health.

Newgen in Numbers 

Newgen’s financial performance in Q2 FY2024 substantiates its growth trajectory. Consolidated revenue from operations reached Rs 293 crore, a robust 30% YoY increase. The company witnessed a 27% increase in average deal sizes, with 51 customers billing over Rs 50 million (Rs 5 crore). Key customer orders included a monumental Rs 68 crore order from a leading public sector bank in India for the complete Digital Business Platform. The financials underscore Newgen’s ability to translate its strong order book into tangible revenue growth.

Newgen’s Strategic Initiatives 

As we look ahead, Newgen is not resting on its laurels. The company is aggressively expanding its footprint with new offices in New York and Riyadh, reflecting a strategic push into the US and Middle East markets. Partnerships with global digital services and solutions providers, such as Coforge Ltd., underscore Newgen’s commitment to delivering transformative solutions.

A Closer Look at the Company and its Key Highlights 

Newgen is a leading provider of a unified digital transformation platform encompassing process automation, content services, communication management, and AI/ML capabilities. Its industry-recognized low-code platform empowers businesses to develop and deploy complex, content-driven applications on the cloud, streamlining workflows and enhancing customer engagement.

Key highlights from Newgen’s Q2 FY’24 performance include:

• 30% YoY revenue growth driven by strong performance in banking and financial services
• 14 new customer additions across geographies
• Established new offices in the US and Middle East to expand global footprint
• Strong growth in annuity revenue streams (ATS/AMC, support, cloud/SaaS, and subscription license)
• Profit after tax up 59% compared to Q2 FY’23

Key Order Highlights:

• Rs 68 crore order from a leading public sector bank for the development and management of their complete Digital Business Platform
• Collaborating with one of the largest banks in India for their Agri-Lending Solution
• Expanded business with existing customers in EMEA, including a large project for a specialized finance company under the Central Bank of Saudi Arabia for Digital Lending
• Secured a new logo in the Americas region – a leading global analytics and technology provider to the insurance industry, for its Content Management offering on cloud

Conclusion 

In conclusion, Newgen Software Technologies Ltd is carving a niche for itself as a small-cap dark horse in the IT sector. The bonus issue and share capital increase demonstrate the company’s commitment to rewarding shareholders and fortifying its financial foundation. The Q2 Concall Analysis paints a picture of a company on the cusp of accelerated growth, especially in the dynamic landscape of digital banking. Industry recognition as a ‘Strong Performer’ in DPA adds further credibility to Newgen’s prowess.

As Newgen continues to unlock simplicity with speed and agility through its unified digital transformation platform, the future seems promising. The company’s dedication to advancing innovation and facilitating end-to-end digital transformation positions it as a key player to watch in the evolving IT landscape. Investors and industry observers alike would do well to keep a keen eye on Newgen Software Technologies Ltd as it navigates the exciting realms of digital transformation.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions