IPO watch: Newgen asking a bit too much, can be avoided

ET Intelligence Group: Delhi-based Newgen software system Technologies can raise funds from the first equity market chiefly to supply exit to non-public equity investors. it'll conjointly use Rs 84.3 large integer from the mercantilism issue to buy and furnish workplace premises. whereas the corporate has a number of the marquee customers in Asian nation and abroad, the mercantilism appearance sharply priced considering the smaller size of operations, longer capital cycle, and intense competition from massive world firms. this might prompt investors to avoid it.

BUSINESS

Incorporated in 1992, Newgen offers 3 core product platforms: enterprise content management, business method management, and client communication management. With 2,318 staff, it caters to over 450 shoppers in sixty countries. Of this, 98 were non-heritable in FY17.

India accounts for regarding forty per cent of the revenue followed by Near East (27 per cent share) and also the America (26per cent). the remainder comes from Asia Pacific. Over the past 3 years, the corporate has been finance in software system platforms. In FY17, it spent 8per cent of revenue on analysis and development.

FINANCIALS

Revenue exaggerated by 20.5 per cent annually since FY13 to Rs 433.8 large integer whereas net income rose by nine.1per cent to Rs 52.4 large integer in FY17. consistent with the management, over 60per cent of a fiscal's revenue is generated within the last half. Also, revenue assortment is focused within the third and also the fourth quarter. as a result of this, the amount of days that sales square measure outstanding is on a better facet at nearly a hundred and fifty. The management is keen to cut back it to 120 days within the returning quarters.

VALUATION

The stock is valued at over 32 times FY17 net income on the equity once the mercantilism and 3.9 times FY17 revenue. It doesn't have Indian peers. Among international peers, Canada-based OpenText Corporation trades at 3.9 times revenue and has trailing price-earnings (P/E) multiple of fifty nine. Another peer, Pegasystems INC from the America is valued at 5 times sales and has P/E of 90. whereas Newgen's valuation seems to be lower, its peers square measure way larger thereby justifying their premium valuations.

OpenText attained $2.3 billion (around Rs 14,700 crore) whereas Pega systems grossed $ 750 million (over Rs 4,800 crore) in revenues in their latest fiscals.

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