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We re-initiate coverage on Newgen with a BUY rating and 12-month target price of Rs797, implying 19% potential upside. Newgen, with annual revenue of US$121mn in FY23, is a software product company with most of its revenue derived from low code business process automation (BPM), enterprise content management (ECM) and customer communication management (CCM). These three core products help digitise any content-driven process – such as account opening, loan origination, claims management, inward or outward remittances in trade finance or bank guarantees, etc. India, EMEA and APAC together account for 75% of Newgen’s annual revenue as FY23, almost same as the BFSI vertical. Our positive view on Newgen is based on the following:

* Newgen operates in an industry with large total addressable market (TAM) of US$38bn as of CY22; Gartner expects a TAM CAGR of 13% over CY22-CY25E, driven by the need for higher digitalisation of processes in banking and various other industries. In the global scheme of things, Newgen is still a small player with 0.3% market share (Refer table 5), but has market leadership in India and EMEA in its core product offerings. Further fillip to Newgen’s overall revenue growth comes potentially from: 1) lower technology penetration in both its major geos, i.e. India and EMEA, compared to developed markets; and 2) health of banking clients in these geographies, which remains in a much better shape than that of DM banks.

* Deeper penetration in developed markets like the US (which already accounts for 24% of Newgen’s revenue as of FY23) and Europe by closely tying up with global system integrators (GSIs) for better referencing would help Newgen increase its global market share, in our view. As a result of this and strong growth in its existing markets, particularly India and EMEA, we forecast Newgen’s revenue CAGR at 21% over FY23-FY26E, higher than the 14% CAGR achieved over FY20-FY23. As per Newgen, once the company crosses the US$200mn revenue threshold (which we expect to happen in FY26E), its marketability across clients through the GSI route will exponentially increase. For instance, Newgen has currently tied up with just 9 GSIs globally vs Pega at 52 (with US$1.3bn revenue in CY22) and App

* Higher recognition by industry analysts like Gartner and Forrester would further potentially help open doors with bigger clients and also for cross referencing / crossselling of its diversified solutions (including ECM, BPM and CCM). As per Gartner Peer Insights, Newgen ranks better over its peers largely around customisation and pricing flexibility. These recognitions would help Newgen target bigger clients including F500 and G2000 (currently ~20) clients and increase its client mining. On the client mining front, over the last two years (FY21-FY23), Newgen has registered a CAGR of 24% in its revenue per client and doubled its >Rs50mn billing clients from 26 to 51

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