Cloud Adoption And AI Will Reshape BFSI And Healthcare

Key Takeaways

• Strong demand for AI-driven workflow and automation, combined with regulatory trends, supports recurring revenues and resilience despite macroeconomic uncertainty.
  
• Ongoing innovation, SaaS adoption, and international expansion diversify risk, enhance margins, and position the company for sustained long-term growth.
  
• Prolonged sales cycles, rising competition, and high client concentration threaten Newgen's growth prospects, margins, and revenue stability while escalating costs further pressure profitability.

Catalysts

A software company, engages in the business of software product development in India, Europe, the Middle East, Africa, the Asia Pacific, Australia, and the United States.

• The ongoing acceleration in global digital transformation, including rising demand for cloud adoption, automation, and artificial intelligence, expands Newgen's addressable market; management highlighted strong client interest in AI-led workflow solutions and recent expansion of AI-driven features, which is expected to drive recurring subscription revenue and long-term revenue growth.
  
• Heightened regulatory and compliance requirements, particularly in the BFSI and healthcare sectors, are sustaining enterprise spending on process automation and document management solutions-segments where Newgen has strong vertical expertise-helping support robust deal pipelines and providing resilience against macroeconomic slowness, underpinning both topline stability and future revenue growth.
  
• Continued shift towards cloud-based SaaS and subscription revenues (noted with 19% YoY growth in subscription revenues this quarter) is improving earnings visibility, recurring cash flows, and net margins, positioning the company for higher-quality revenues and multiple expansion once short-term deal closures normalize.
  
• Persistent investments in R&D and deepening product innovation-especially around low-code, no-code, and generative AI capabilities-enhance Newgen's competitive edge, facilitate cross-sell/up-sell opportunities, and are likely to drive long-term margin expansion through premium offerings, even as wage costs rise.
  
• Management's focus on expanding into new international markets (U.S., EMEA, APAC) and broadening addressable verticals (insurance, enterprise) diversifies the customer base, reducing revenue concentration risk; near-term slowdowns in large deal closures appear more cyclical than structural, suggesting an undervalued stock with strong earnings recovery potential as deal momentum improves in H2.

Newgen Software Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Newgen Software Technologies's revenue will grow by 17.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.3% today to 20.8% in 3 years time.
• Analysts expect earnings to reach ₹5.1 billion (and earnings per share of ₹34.6) by about July 2028, up from ₹3.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹4.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 46.3x on those 2028 earnings, up from 39.3x today. This future PE is greater than the current PE for the IN Software industry at 38.5x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 15.03%, as per the Simply Wall St company report.

Newgen Software Technologies Future Earnings Per Share Growth

Risks

• Sustained slowdown and lower conversion rates of large deals, particularly in key markets like banking and public sector, suggest increased deal uncertainty and elongating sales cycles, which may dampen license-based revenue and reduce topline growth in the medium to long term.
  
• Intensifying competition from both global SaaS platform players and local start-ups, specifically mentioned are players like Salesforce, ServiceNow, and OutSystems, creates a more crowded market and could erode Newgen's market share and pricing power, impacting future revenues and margins.
  
• Delays in execution and implementation of large projects, including sluggish project closure and protracted realization of support and subscription revenues, constrain the growth of high-margin annuity and support streams, thereby negatively affecting cash flow visibility and net margin expansion.
  
• Heavy sectoral and client concentration in banking (which constitutes 60-65% of the business) and large public sector orders expose Newgen to macroeconomic, regulatory, and customer-specific risks; any persistent stagnation or rationalization in these segments could lead to revenue volatility and reduce earnings quality.
  
• Upward wage pressure and the need to increase investments in R&D and sales are likely to raise operating costs at a time when deal sizes are shrinking, potentially squeezing net margins if topline growth fails to keep pace with rising expenditures, especially given the company's growth-oriented cost structure.

Valuation

• The analysts have a consensus price target of ₹1091.2 for Newgen Software Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1300.0, and the most bearish reporting a price target of just ₹835.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹24.3 billion, earnings will come to ₹5.1 billion, and it would be trading on a PE ratio of 46.3x, assuming you use a discount rate of 15.0%.
  
• Given the current share price of ₹883.2, the analyst price target of ₹1091.2 is 19.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.