As Newgen Software IPO opens today for subscription, brokerage houses and analysts have come up with their reports and recommendations. The IPO, priced in the range of INR240 – 245 per share, aims to raise as much as INR424.6 crore (INR4.25 billion). Out of this, the company has already secured INR127.38 crore by placing 5,199,444 shares with nine anchor investors at the upper end of the price band. These investors include Goldman Sachs India, HDFC Trustee Company, Forefront Alternative Investment Trust, Aditya Birla Sun Life, BNP Baripas Arbitrage and SBI Mutual Fund. One can get more details about the public offer on this page. Here is a quick snapshot of Newgen Software IPO recommendations by major brokerage houses.
Sushil Finance feels valuations are fair considering growth potential and has a subscribe rating on the upcoming IPO. “Valuation wise the issue is priced at 5.6 times the book value and the P/E Ratio comes to 23X, which when compared to global peers OpenText and PegaSystems (as listed in Gartner and Forrester reports) is fair when the growth potential of the company in India and scalability abroad is factored in. Looking at the technical expertise of the management, the R&D focus of the company and the growth potential and scalability of their 450 global clients, we advise investors to subscribe to the issue for the long term,” said its IPO report.
However, Angel Broking has a neutral view as it finds valuations expensive than peers. “In terms of valuations, the pre-issue P/E works out to 274x its 1HFY2018 annualized earnings (at the upper end of the issue price band), which is higher compared to its peers like Intellect Design Arena (trading at PE 143x – 1HFY2018 annualized earnings). Further last four years historical financial records and 1HFY18 doesn’t provides confidence. Hence, we recommend Neutral rating on the issue,” noted Angel Broking’s research note.
While Angel Broking has a neutral view, Choice Broking believes investors are better off by not applying to the IPO. “Given the high sensitivity of business to global macro events, repellent receivable policy, completely exits of PE players and high demanding valuation, we are of the view that the issue is aggressively priced leaving no space for further upside. Thus we assign ‘Avoid’ rating to the issue,” said analyst Satish Kumar in his recommendation.
Nevertheless, SSJ Finance is among the research houses with positive Newgen Software IPO recommendations. “NSTL has reported a CAGR of 20.7% and 9.1% on revenue and net profit fronts respectively over FY2013-2017. On its upper band of price of Rs 275, the issue is priced at PE ratio of 30.6x of its FY2017 EPS of Rs 8.0. We believe that the IPO is fairly priced leaving a room for upside. Hence, we recommend to Subscribe the IPO,” said the research house.
Emkay Global has a positive view on the IPO and has thrown its weight behind the offer by offering a detailed explanation. “We believe that the company has strong business positioning in growing ECM/BPM space and would be able to continue its revenue growth traction in coming period driven by expanding market presence, strong new client additions and mining opportunities in terms of more process/product opportunity from existing customers. With increased revenue contribution from developed geographies it would be able to improve its profitability and DSO profile which will enhance return ratios and cash flow conversions. We believe that the issue price (Rs240-Rs245) is attractively priced at an expected P/E multiple of 26x/22x on FY18E/FY19E earnings (we have maintained its historical growth rates of 20% growth for our FY18/19E estimates),” said it report.
The brokerage house noted that the company’s aggressive pricing and high P/E ratio is justified “as it would command high-growth premium and strong potential of improved profitability going forward”. Emkay’s report added that Newgen’s implied PEG of 1.1x as against mid tier IT services players trading in range of 1.2x-1.6x and thus, recommended a Subscribe view to the issue.
Newgen Software IPO recommendations got a further positive bias with Hem Securities advising investors to apply for long term. “The co is bringing the issue at p/e multiple of 33 on FY17 eps of Rs 8.26 at higher price band of Rs 240-245/share. Looking after financials of co we recommend “Long Term Subscribe” on it,” said its research note.
As one can see, there is no consensus in Newgen Software IPO recommendations so far and thus, making an investment call is going to depend on an individual’s risk appetite. It is worth highlighting that the IPO is commanding a premium in grey market, although that should not be considered as a sacrosanct sign.