IPO Of IT Company Newgen Software Subscribed 18% On Day 1

New Delhi-based IT company Newgen Software’s IPO has registered a slow growth on day one of its opening and has been subscribed just 18%. The IPO subscription will get closed on January 18, 2018.

With this IPO, Newgen is offering 13.4 Mn shares at an Issue price of $3.77 – $3.85 (INR 240-INR 245) per share, in a bid to raise around $71 Mn.  Newgen Software is looking to dilute around 25% stake, of which 21% will be from private equity investors. The rest will be sold by the company’s existing employees.

As stated by Newgen Software MD Diwakar Nigam in a media statement, “We are financially doing very well and registering good growth year-on-year. The IPO is mainly to provide exit or monetisation opportunity to some of our existing investors who have been with us for very long time. Around $14.8 Mn – $15.6 Mn (INR 95 Cr-INR 100 Cr) of the total fund will be used for setting up a new office in Noida.”

The remaining amount will be used for ‘General Corporate’ purposes.

Newgen also raised $20 Mn via anchor share allotment to nine institutional investors, a day prior to the opening of its IPO. With this IPO, Newgen venture capital investors including IDG Ventures, SAP Ventures, and Ascent Capital will also take an exit.

The company will get listed on both NSE and BSE.

Company Overview: Newgen Software

Founded in 1992, Newgen Software is an IT company headquartered in New Delhi. It is a software products company offering a platform that enables organisations to rapidly develop powerful applications addressing their strategic business needs.

The company provides a globally accepted stack of software products and services including Business Process Management (BPM), Enterprise Content Management (ECM), Customer Communication Management (CCM), Document Management System (DMS), Workflow and Process Automation.

As of June 30, 2017, the company claims to have a grant for four patents while 28 patent applications were outstanding.

The firm currently sells its products across 60 countries. It basically provides services to the clients in sectors such as Banking, government/PSUs,  BPO/IT, insurance and healthcare verticals.

A few of its clients include TCS, HP, HCL etc. The company also has banks, insurance firms, BPOs, healthcare organisations etc. as its clients. In addition to India, Newgen Software has offices in the US, Canada, the United Kingdom, Singapore, and Dubai.

As of June 30, 2017, the company claims to have more than 300 channel partners and over 450 active customers (invoiced in the last 12 months) globally. Also, it boasts a workforce of more than 2,200 employees, of which around 238 are working on research and development.

Newgen Financials

The business has multiple revenue streams including from the sale of software products, Annuity based revenue, subscription fees for licenses in relation to platform deployed on cloud, charges for annual technical support and maintenance (including updates)  of licenses, and installation as well as support charges for support and development services.

Newgen derives a significant portion of its revenues from its business operations outside India. Its international sales and operations are primarily undertaken through its subsidiaries and branch offices. In fiscals 2017, 2016 and 2015, its business operations outside India contributed 60.38%,  67.27%  and  66.41 % of its revenue from operations, respectively.

In fiscals 2017, 2016, and 2015, the total revenue from customers in the Banking, government/PSUs,  BPO/IT, insurance and healthcare verticals, was 85.87%, 83.21% and 78.76 % of its revenue from operations, respectively.

As of August 31, 2017, the company also claims to had a consolidated debt of $11.6 Mn (INR 74.8 Cr).

Competition And Market Opportunity

On the competition front, the company operates in a price -sensitive market which includes multi-product suite offering vendors as well as those providing open source softwares for free.

The company refers to the Ovum Report in its Draft Red Herring Prospectus, according to which almost 30% of enterprises plan to make strategic investments in ECM in the next 18 months, with a further 40% planning minor investments. Also, over 25% of enterprises are planning strategic investment in BPM suites over the next 18 month period. All this indicates the expected growth in Newgen Software core addressable market.

Further, with operations in sectors such as banking, government/PSU, BPO/IT and healthcare, Newgen will also be befitted with the growth in global PaaS (Platform as a Service) market. The global PaaS market is estimated at $17.61 Bn in 2017 and forecasted at $46.66 Bn in 2021, wherein the Indian PaaS market is expected to grow from $379 Mn in 2017 to $1.46 Bn by the end of 2021.

Digitisation is driving major changes in the global business software market. With IT leaders looking to adopt new technologies and software platforms to meet critical business needs, the scope for enterprise softwares has already gained a tremendous momentum.

Being into IT sector with over 20 years of history and strong financials, the scope of growth for the company cannot be negated. Although the IPO has taken a slow start, it will be too early to comment on the success or failure. As analysts expect the Newgen IPO to be subscribed majorly bylong-termm investors, a certain rise in the percentage of subscription can be expected in the remaining two days.