Recommendation from Computers - Software Sector
This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.
Newgen Software Technologies India : MAPPING DECISIVE GROWTH DIGITALLY
HERE IS WHY
☛Good growth prospects
☛Well-diversified revenue stream
☛Shown good improvement in financial performance.
Newgen Software Technologies India is a global provider of business process management (BPM), enterprise content management (ECM) and customer communication management (CCM) solutions with a footprint in 66 countries with large, mission-critical solutions deployed at banks, governments, BPOs and IT companies, insurance firms and healthcare organisations. The group has long-standing relations with more than 540 customers. Up to 77 per cent of the revenue comes from existing customers, making the revenue stream less volatile.
The company helps clients make their processes automated, digitalized and cloud-based. They have the capabilities to customise the offerings as per client needs. Headquartered out of New Delhi, the company is present through its subsidiaries in the United States, Canada, United Kingdom, Australia and Singapore and through its branch office in Dubai. The company is likely to benefit from the emerging trends in digitalization with an increasing number of companies across the globe going digital. In mature markets, the company has strong traction for cloud business (SaaS), which attracts more predictable revenue streams with better long-term margins.
The company is well-diversified geographically and in terms of segments. It gets 30 per cent of its revenue from USA, 33 per cent from EMEA, 26 per cent from India and 11 per cent from APAC (excluding India). By way of segments, support contributes 31 per cent, implementation 24 per cent, sale of product and ATS/AMC 19 per cent each, SaaS 6 per cent and scanning 1 per cent. Over the last five years the company’s different segments have progressed at various growth rates. SaaS has seen a CAGR growth of 127 per cent, sale of products 25 per cent, support and ATS/AMC 22 per cent each, implementation 12 per cent and scanning 9 per cent.
For the quarter ended December 2019, its gross sales increased by 15.2 per cent to Rs 184.95 crore in Q3FY20 from Rs 160.54 crore in Q3FY19. PBIDT (excluding other income) showed an increase of 33.7 per cent to Rs 35.79 crore in Q3FY20 from Rs 26.77 crore in the same quarter last year. PBIDT margin (excluding other income) for Q3FY20 stood at 19.35 per cent as against 16.68 per cent in Q3FY19. PAT for Q3FY20 stood at Rs 23.96 crore as against Rs 18.06 crore in the same quarter last year, showing an increase of 32.69 per cent.
PAT margin for Q3FY20 stood at 12.96 per cent as against 11.25 per cent in Q3FY19. It has manageable debt levels with an interest coverage ratio of over 16x. The full year ROCE for FY19 stood at 27.11 per cent. High ROCE indicates efficient use of capital by the company. The company has shown improvement in ROCE and profit margins (EBITDA margins and PAT margins) over the last few years due to better realisation from the services offered. The stock is trading at a PE multiple of 11.86x.
By virtue of these factors, we recommend our reader-investors to BUY this stock.