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Aspiring to reach US$500 mn annual revenues in 5-6 years

About the stock: Incorporated in 1992, 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) & customer communications management (CCM).

* Annuity based revenues (SaaS + ATS/AMC + Support) comprises 59% of revenue mix while license & others form 20.7% revenue mix each

* Vertical wise, BFSI comprises 66% of revenue mix while geographical break-up has been largely equal between India, US, EMEA & APAC

Q2FY23 Results: Newgen reported strong YoY revenue growth.

* Reported revenue up 21.9% YoY led by SaaS, which grew 50% YoY

* The company added 14 new logos in Q2 and 20 in H1FY23

* Annuity revenue grew 24.3% YoY

What should investors do: Newgen’s share price has grown ~1.5x since listing in January 2018–October 2022.

* We maintain BUY rating on the stock

Target Price and Valuation: We value Newgen at | 445 i.e. 13x P/E on FY25E EPS.

Key triggers for future price performance:

* Strong logo addition and increasing annuity mix (recurring business) from existing clients would aid revenue growth of 16.2% CAGR in FY22-25E

* The company is working on 90 cases as far as GSI opportunity is concerned, which could provide an incremental revenue opportunity of | 79-131 crore depending on the funnel as well as winning rate, etc

* Recent acquisition of number theory will strengthen its platform with AI/ML modelling and data analytics capability

Alternate Stock Idea: Apart from Newgen, in our IT coverage we also like Intellect.

* SaaS driven BFSI focused product company

* BUY with a target price of | 740

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