Edelweiss Wealth Suggests Buying This Digital Transformation Stock For 45% Upside: Revenue Gains To Rs. 226 Cr

Edelweiss Wealth, a top brokerage firm suggests investors to add the stock of Newgen Software Technologies Ltd. The company is delivering stable double-digit growth even though the US and GSI are laggards and management is confident of achieving accelerated growth once both of them improve. Newgen is a leading provider of a unified digital transformation platform with native process automation, content services, and communication management capabilities.

Stock To Buy: Target Price

The Current Market Price (CMP) of Newgen Software Technologies Ltd. is around Rs. 370. Edelweiss Wealth has estimated a Target Price for the stock at Rs. 535. This stock has the potential to give a 45% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 2,507 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 370
Target Price	Rs. 535
Potential Upside	45.00%
52-week high share price	Rs. 671.70
52-week low share price	Rs. 323.75

Strong financials

Revenue came in at Rs. 226 crore, +20.3%/+21.9% QoQ/YoY. EBITDA margin came at 16.6% against our est of 17.7% vs 25.1% in Q2FY22. PAT came at Rs. 30.3 crore, +58%/-19% QoQ/YoY. The company recorded 14 new logos in Q2FY23 taking total to 20 new logo wins in H1FY2. Subscription/Annuity revenues grew 30%/24% YoY to Rs. 79/143 crore. We expect the company to deliver 19%/12% revenues/PAT CAGR over FY22-24E.

Stock Upside

Giving a buy rating, Edelweiss Wealth said, "Newgen reported better revenues and in line PAT v/s our estimates in Q2FY23. We expect Newgen to record 19%/12% CAGR in revenues/PAT over FY22-24E. While US has posted a subdued performance, other geographies have led the growth this quarter. With costs expected to stabilize, margins are likely expand in the seasonally strong Q3 and Q4. While we remain positive on the stock based on its growth momentum we have revised our FY23/FY24 Profit downwards to account for slowdown and uncertainty in US and Europe geographies."

Margins to improve going forward

EBITDA margin came at 16.6% against our est of 17.7% vs 25.1% in Q2FY22. Management expects costs to be stable or reduce in absolute terms in H2 when compared to H1. They guided for much better margins in seasonally stronger quarters of Q3 & Q4. Besides, once revenues from the GSI channel start flowing in, the management expects margins to improve as well. Sales & Marketing margins are likely to remain flat in H2 and on a lower cost basis, margins are expected to expand.

New Launches

The quarter was marked by 14 new logo wins spread across geographies compared to 6 logo wins in Q1. The company also launched the low code Trade Finance Platform that helps banks go paperless and streamline their end-to-end trade processes. This product will target Emerging markets, SE Asia, India, and Europe. The management says they are pursuing at least 30 different opportunities in the funnel and expect to close at least 3 to 4 deals this year.

Disclaimer

The above stock was picked from the brokerage report of Edelweiss Wealth. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.